-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CmM2E9Ax/eZU0zD4a2eTQRQvyuisQny2C99vOZxG3+4jVB5obRT2hUfu6YF+IgPQ C3ue7BorLHl0jaRCtDoufg== 0000950168-00-001345.txt : 20000515 0000950168-00-001345.hdr.sgml : 20000515 ACCESSION NUMBER: 0000950168-00-001345 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20000411 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20000512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: US LEC CORP CENTRAL INDEX KEY: 0001054290 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 562065535 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-24061 FILM NUMBER: 629760 BUSINESS ADDRESS: STREET 1: 401 N TRYON ST STREET 2: STE 1000 CITY: CHARLOTTE STATE: NC ZIP: 28251 MAIL ADDRESS: STREET 1: 212 S TRYON ST STREET 2: SUITE 1540 CITY: CHARLOTTE STATE: NC ZIP: 28281 8-K 1 US LEC CORP. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (date of earliest event reported): APRIL 11, 2000 DELAWARE 0-24061 56-2065535 (State or other jurisdiction of (Commission File (IRS Employer incorporation) Number) Identification Number) US LEC CORP. (Exact name of registrant as specified in its charter) 401 NORTH TRYON STREET, SUITE 1000 CHARLOTTE, NORTH CAROLINA 28202 (Address of principal executive offices) (Zip Code) Registrant's Telephone Number, including area code: (704) 319-1000 NOT APPLICABLE (Former Name or Former Address, If Changed Since Last Report) ITEM 5. OTHER EVENTS On April 11, 2000, US LEC Corp. ("US LEC" or the "Company") entered into a Preferred Stock Purchase Agreement (the "Purchase Agreement") pursuant to which the Company sold 100,000 shares of the Company's Series A Convertible Preferred Stock ("Series A Preferred Stock"), at a price of $1,000 per share, to affiliates of each of Bain Capital, Inc. ("Bain") and Thomas H. Lee Partners, L.P. ("THL") (collectively, the "Investors"). The gross proceeds of the sale were $200 million. Each share of Series A Preferred Stock issued in the transaction is convertible into shares of the Company's Class A Common Stock, at an initial conversion price of $35 per share, beginning on April 11, 2001 or earlier if the Company is acquired or experiences a change of control. The conversion price is subject to adjustment if the Company (i) subdivides its common stock by effecting a stock split or stock dividend, or (ii) subject to certain exceptions, issues or sells additional shares of common stock or securities convertible into common stock for less than $35 per share. The Series A Preferred Stock accrues preferential dividends daily and on a cumulative basis at an annual rate of six percent (6%) per annum, payable quarterly in additional shares of Series A Preferred Stock through April 11, 2003 and, at the option of the Company, in cash or additional shares of Series A Preferred Stock during the following seven years, unless the outstanding Series A Preferred Stock is redeemed or converted. At any time on or after the occurrence of a change of control and for a period of 60 days thereafter, holders of Series A Preferred Stock will have the right to require the Company to redeem all or a portion of their stock at a redemption price equal to 101% of its liquidation value. All outstanding shares of Series A Preferred Stock are subject to mandatory redemption by the Company on April 11, 2010 at liquidation value. The holders of Series A Preferred Stock are entitled to elect two directors of the Company for so long as they own at least 30% of the Class A Common Stock issued or issuable upon conversion of the Series A Preferred Stock (the "Underlying Common Stock"), and one director for so long as they own less than 30% but more than 20% of the Underlying Common Stock. On April 12, 2000, Michael A. Krupka, a managing director of Bain, and Anthony J. DiNovi, a managing director of THL, were named directors of US LEC. The holders of Series A Preferred Stock also are entitled to vote, as a class, with holders of common stock on each matter submitted to a vote of the Company's stockholders. Each share of Series A Preferred Stock has a number of votes equal to the number of shares of Class A Common Stock issuable upon conversion of a share of Series A Preferred Stock. Pursuant to the Purchase Agreement, Bain and THL were each granted an option to purchase up to 50,000 shares of the Company's Series B Convertible Preferred Stock ("Series B Preferred Stock"), at a price of $1,000 per share, exercisable, subject to limited exceptions, at any one time on or before April 11, 2001 (the "Option"). If the Option is exercised, the terms and conditions of the Series B Preferred Stock will be substantially identical to those of the Series A Preferred Stock, except that the initial conversion price will be $46.50 per share. 2 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS The following exhibits are being furnished with this report. EXHIBIT NUMBER DESCRIPTION ------ ----------- 4.1 Preferred Stock Purchase Agreement, dated April 11, 2000. 4.2 Option Agreement, dated April 11, 2000. 4.3 Corporate Governance Agreement, dated April 11, 2000. 4.4 Registration Rights Agreement, dated April 11, 2000. 4.5 Certificate of Designation Relating to Series A Convertible Preferred Stock. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. US LEC Corp. May 12, 2000 By: /s/ Michael K. Robinson ----------------------- Name: Michael K. Robinson Title: Executive Vice President and Chief Financial Officer 3 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION ------ ----------- 4.1 Preferred Stock Purchase Agreement, dated April 11, 2000. 4.2 Option Agreement, dated April 11, 2000. 4.3 Corporate Governance Agreement, dated April 11, 2000. 4.4 Registration Rights Agreement, dated April 11, 2000. 4.5 Certificate of Designation Relating to Series A Convertible Preferred Stock. EX-4.1 2 PREFERRED STOCK PURCHASE AGREEMENT - -------------------------------------------------------------------------------- PREFERRED STOCK PURCHASE AGREEMENT by and among US LEC CORP. and the Persons listed on Schedule 1 attached hereto Dated as of April 11, 2000 ------------------------------------ - -------------------------------------------------------------------------------- TABLE OF CONTENTS Page ARTICLE I DEFINITIONS.........................................................1 1.1 Definitions...........................................................1 1.2 Accounting Terms......................................................9 ARTICLE II PURCHASE AND SALE OF PREFERRED STOCK..............................10 2.1 Purchase and Sale of the Preferred Stock.............................10 2.2 Closing..............................................................10 ARTICLE III CONDITIONS TO THE OBLIGATION OF THE PURCHASERS TO CLOSE..........10 3.1 Representations and Warranties.......................................10 3.2 Compliance with this Agreement.......................................11 3.3 Officer's Certificate................................................11 3.4 Secretary's Certificate, Good Standing Certificates..................11 3.5 Transaction Documents................................................11 3.6 Payment of Fees......................................................11 3.7 Purchase Permitted by Applicable Laws................................12 3.8 Opinions of Counsel..................................................12 3.9 HSR Clearance........................................................13 3.10 Certificate of Designation........................................13 3.11 Preferred Stock Certificate.......................................13 3.12 Required Contractual Consents.....................................13 3.13 Voting and Tag-Along Agreement....................................13 3.14 Amendment to Senior Loan Agreement................................13 3.15 Required Governmental Consents....................................13 3.16 Regulatory Events.................................................14 3.17 Amendment of Bylaws...............................................14 3.18 Option Agreement..................................................14 3.19 Corporate Governance Agreement....................................14 3.20 Registration Rights Agreement.....................................14 3.21 Listing of Shares.................................................14 3.22 Amendment to Class B Stockholders Agreement.......................14 ARTICLE IV CONDITIONS TO THE OBLIGATION OF THE COMPANY TO CLOSE..............14 4.1 Representations and Warranties True..................................15 4.2 Compliance with this Agreement.......................................15 4.3 Issuance Permitted by Requirements of Laws...........................15 4.4 HSR Clearance........................................................15 4.5 Opinion of Counsel...................................................15 4.6 Transaction Documents................................................15 ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................15 5.1 Organization and Qualification.......................................15 5.2 Authority and Authorization..........................................16 5.3 Execution and Binding Effect.........................................16 i 5.4 Governmental Authorizations..........................................16 5.5 Regulatory Authorizations............................................16 5.6 Agreements and Other Documents.......................................17 5.7 Absence of Conflicts.................................................17 5.8 Financial Statements.................................................17 5.9 Disclosure...........................................................18 5.10 Compliance with Material Agreements...............................18 5.11 Labor Matters.....................................................18 5.12 Litigation........................................................18 5.13 Rights to Property................................................19 5.14 Taxes.............................................................19 5.16 No Brokerage Fees.................................................20 5.17 ERISA.............................................................20 5.18 Intellectual Property.............................................20 5.19 Environmental.....................................................21 5.20 Subsidiaries......................................................21 5.21 Transactions with Affiliates......................................21 5.22 Capitalization....................................................21 5.23 Commission Filings................................................22 5.24 Investment Company; Public Utility Holding Company................22 5.25 Securities Act....................................................22 5.26 Books and Records.................................................23 5.27 Certain Payments..................................................23 5.28 Year 2000 Compliance..............................................23 5.29 Trade Relations...................................................23 ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS..................23 6.1 Authorization; No Contravention......................................23 6.2 Binding Effect.......................................................24 6.3 Accredited Investor; Purchase for Own Account........................24 6.4 Governmental Authorizations..........................................25 6.5 No Brokers or Finders................................................25 6.6 Ownership of Company Securities; Voting and Other Agreements.........25 ARTICLE VII COVENANTS........................................................25 7.1 HSR Clearance........................................................25 7.2 Reservation of Shares................................................26 7.3 PUC Consents.........................................................26 7.4 Delivery of Financial and Business Information.......................26 7.5 Access to Properties.................................................27 7.6 Pre-Closing Covenants................................................27 7.7 Exclusivity..........................................................27 7.8 Tax Matters..........................................................28 7.9 Confidentiality......................................................28 7.10 Schedule 13D and 13G..............................................29 7.11 Election of Directors.............................................29 ii 7.12 Series C Designation..............................................29 7.13 Additional Covenant...............................................29 ARTICLE VIII INDEMNIFICATION; TERMINATION....................................29 8.1 Indemnification......................................................29 8.2 Notification.........................................................30 8.3 Termination..........................................................30 ARTICLE IX MISCELLANEOUS.....................................................31 9.1 Claims and Suits Under Section 8.1...................................31 9.2 Notices..............................................................31 9.3 Successors and Assigns...............................................33 9.4 Determinations, Requests or Consents.................................33 9.5 Counterparts.........................................................33 9.6 Headings.............................................................33 9.7 Governing Law........................................................33 9.8 Severability.........................................................33 9.9 Rules of Construction................................................34 9.10 Entire Agreement..................................................34 9.12 Publicity.........................................................35 9.13 Further Assurances................................................35 SCHEDULES Schedule 1 - Closing Purchasers Schedule 5.4 - Governmental Authorizations Schedule 5.5 - Regulatory Authorizations Schedule 5.6 - Agreements and Other Documents Schedule 5.7 - Absence of Conflicts Schedule 5.8 - Financial Statements Schedule 5.10 - Compliance with Material Agreements Schedule 5.12 - Labor Matters and Litigation Schedule 5.14 - Taxes Schedule 5.15 - No Material Adverse Change Schedule 5.16 - Brokerage Fees Schedule 5.18 - Intellectual Property Schedule 5.20 - Subsidiaries Schedule 5.21 - Transactions with Affiliates Schedule 5.22 - Capitalization Schedule 5.29 - Trade Relations Schedule 6.5 - Brokers or Finders EXHIBITS Exhibit A - Form of Certificate of Designation Exhibit B - Bylaws iii Exhibit C - Form of Corporate Governance Agreement Exhibit D - Form of Registration Rights Agreement Exhibit E - Form of Officer's Certificate Exhibit F - Form of Secretary's Certificate Exhibit G - Form of Preferred Stock Certificate Exhibit H - Form of Voting and Tag-Along Agreement Exhibit I - Form of Amendment to Senior Loan Agreement Exhibit J - Form of Option Agreement Exhibit K - Form of Certificate of Designation for Series C Preferred Stock Exhibit L - Form of Series C Preferred Stock Purchase Agreement Exhibit M - Additional Covenant iv PREFERRED STOCK PURCHASE AGREEMENT THIS PREFERRED STOCK PURCHASE AGREEMENT is dated as of April 11, 2000, by and among US LEC CORP., a Delaware corporation (the "Company"), and the Persons whose names are set forth on Schedule 1 attached hereto (individually, a "Purchaser" and collectively, the "Purchasers"). STATEMENT OF PURPOSE WHEREAS, the Company will designate a new series of its preferred stock, par value $0.01 per share, which shall be called the Company's Series A Convertible Preferred Stock (the "Preferred Stock"), which shall be convertible into shares of the Company's Class A common stock, par value $0.01 per share, in accordance with the terms of the Company's Certificate of Designation amending the Company's Restated Certificate of Incorporation in the form attached hereto as Exhibit A (the "Certificate of Designation"); WHEREAS, the Purchasers wish to purchase at the Closing (as defined below), upon the terms and conditions stated in this Agreement, the number of shares of the Preferred Stock set forth opposite their name on Schedule 1 attached hereto for an aggregate of 200,000 shares of the Preferred Stock to be purchased by the Purchasers; and WHEREAS, the Company and the Purchasers have reached certain agreements with regard to the foregoing transactions, all upon the terms and conditions more particularly described herein. AGREEMENT NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS 1.1 DEFINITIONS. As used in this Agreement, and unless the context requires a different meaning, the following terms have the meanings indicated: "AFFILIATE" means, with respect to a Person, (a) any director, executive officer, general partner, managing member or other manager of such Person, (b) any other Person (other than a Subsidiary) which directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person and (c) if such Person is an individual, any member of the immediate family (including parents, spouse and children) of such individual, any trust whose principal beneficiary is such individual or one or more members of such individual's immediate family and any Person who is controlled by any such member or trust. The term "control" means (i) the power to vote 25% or more of the securities or other equity interests of a Person having ordinary voting power (on a fully diluted basis), or (ii) the possession, directly or indirectly, of any other power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise. "AGREEMENT" means this Preferred Stock Purchase Agreement, as amended or supplemented from time to time. "BUSINESS DAY" means any day other than a Saturday, Sunday or other day on which commercial banks in New York City, New York or Charlotte, North Carolina are authorized or required by law or executive order to close. "BYLAWS" means the Bylaws of the Company as amended pursuant to Section 3.17 on or prior to the Closing Date and attached hereto as Exhibit B. "CERTIFICATE OF DESIGNATION" means the Certificate of Designation of the Company relating to the Preferred Stock filed with the Secretary of State of the State of Delaware on or prior to the Closing Date and attached hereto as Exhibit A, as subsequently amended, supplemented or otherwise modified. "CERTIFICATE OF INCORPORATION" means the Restated Certificate of Incorporation of the Company as in effect on the date hereof and as amended by the Certificate of Designation. "CLASS B COMMON STOCK" means the Company's Class B common stock, par value $0.01 per share or any other capital stock of the Company into which such stock is reclassified or reconstituted. "CLOSING" has the meaning assigned thereto in Section 2.2. "CLOSING DATE" has the meaning assigned thereto in Section 2.2. "CLOSING FAILURE" has the meaning assigned thereto in Section 8.3(a). "CODE" means the Internal Revenue Code of 1986, as amended, or any successor statute thereto. "COMMISSION" means the United States Securities and Exchange Commission. "COMMON STOCK" means the Company's Class A common stock, par value $0.01 per share or any other capital stock of the Company into which such stock is reclassified or reconstituted. 2 "COMMUNICATIONS LAW" means any and all of (i) the Telecommunications Act of 1996, the Communications Act of 1934, any similar or successor federal statute to either and the rules and regulations of the FCC thereunder; and (ii) any state law governing the provision of telecommunications services and the rules and regulations of the PUC, all as the same may be in effect from time to time. "COMPANY" has the meaning assigned thereto in the Preamble. "COMPANY INDEMNIFIED PARTY" has the meaning assigned thereto in Section 8.1. "COMPANY LIABILITIES" has the meaning assigned thereto in Section 8.1. "COMPETITOR" means any Person that is (directly or through one or more Affiliates) both (i) engaged in the business of providing telecommunication services offered by the Company and its Subsidiaries that generate at least 25% of the Company's consolidated revenues as of the date of the Company's most recent Form 10-K or 10-Q filed with the Commission and the revenues of such Person attributable to such services exceed $50 million annualized and (ii) a competitor of the Company operating in at least 25% of the MSAs (Metropolitan Statistical Areas) in which the Company and its Subsidiaries are operating as of the time of the proposed Transfer. "CONTRACTUAL OBLIGATIONS" means, with respect to a Person, any provision of any security issued by such Person or of any agreement, undertaking, contract, indenture, mortgage, deed of trust or other instrument to which such Person is a party or by which it or any of its property is bound. "CORPORATE GOVERNANCE AGREEMENT" means the Corporate Governance Agreement dated as of the Closing Date among the Company and the Purchasers listed on the signature pages thereto and attached hereto as Exhibit C. "DGCL" has the meaning assigned thereto in Section 2.1. "ENVIRONMENTAL LAW" means any federal, state, foreign or local statute, law, rule, regulation, ordinance, code or rule of common law now or hereafter in effect and in each case as amended, and any judicial or administrative interpretation thereof, including any legally binding judicial or administrative order, consent decree or judgment, relating to the environment, employee, health and safety or Hazardous Materials, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. ss. 9601 et seq.; the Resource Conservation and Recovery Act, as amended, 42 U.S.C. ss. 6901 et seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C. ss. 1251 et seq.; the Toxic Substances Control Act, 15 U.S.C. ss. 2601 et seq.; the Clean Air Act, 42 U.S.C. ss. 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. ss.ss. 201 & 300f et seq.; the Oil Pollution Act of 1990, 33 U.S.C. ss. 2701 et seq.; the Emergency Planning and the Community Right-to-Know Act of 1986, 42 U.S.C. ss. 11001 et seq.; the Hazardous Material Transportation Act, 49 U.S.C. ss.1801 et seq. and the Occupational Safety and Health Act, 29 U.S.C. ss. 651 et seq.; and any state and local or foreign counterparts or equivalents, in each case as amended from time to time. 3 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ERISA AFFILIATE" shall mean any corporation, trade or business that is, along with the Company, a member of a controlled group of corporations or a controlled group of trades or businesses, as described in Section 414(b) and 414(c), respectively, of the Code or Section 4001 of ERISA. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "FCC" means the Federal Communications Commission of the United States of America, and any successor, in whole or in part, to its jurisdiction. "FINANCIAL STATEMENTS" has the meaning assigned thereto in Section 5.8. "GAAP" means generally accepted United States accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board that are applicable to the circumstances as of the date of determination. "GOVERNMENTAL AUTHORITY" means the government of any nation, state, city, locality or other political subdivision of any thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. "HAZARDOUS MATERIALS" means (i) any petroleum or petroleum products, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, polychlorinated biphenyls, and radon gas; (ii) any chemicals, materials or substances defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials", "extremely hazardous substances", "restricted hazardous wastes", "toxic substances", "toxic pollutants", "contaminants" or "pollutants", or words of similar meaning and effect, under any applicable Environmental Law; and (iii) any other chemical, material or substance the release of which is prohibited, limited or regulated by any Environmental Law. "INDEBTEDNESS" means as to any Person, at a particular time, (a) indebtedness for borrowed money or for the deferred purchase price of property or services in respect of which such Person is liable, contingently or otherwise, as obligor, guarantor or otherwise, or in respect of which such Person otherwise assures a creditor against loss, (b) obligations under leases which shall have been or should be, in accordance with GAAP, recorded as capital leases in respect of which obligations such Person is liable, contingently or otherwise, as obligor, guarantor or otherwise, or in respect of which obligations such Person assures a creditor against loss, (c) obligations of such Person to purchase or repurchase accounts receivable, chattel paper or other payment rights sold or assigned by such Person, (d) indebtedness or obligations of such Person under or with respect to letters of credit, notes, bonds or other debt instruments (other than letters of credit that are cash collateralized) and (e) all obligations of such Person under any interest rate swap, cap or collar agreement or other similar agreement or arrangement designed to alter the risks of that Person arising from fluctuations in interest rates, in each case whether contingent or matured. 4 "LIEN" means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), priority or other security agreement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing or similar statement or notice filed under the Uniform Commercial Code or any other similar recording or notice statute, and any lease having substantially the same effect as any of the foregoing). "MATERIAL ADVERSE CHANGE" means a material adverse change in (i) the business, operations, assets, condition (financial or otherwise) or properties of the Company and its Subsidiaries, taken as a whole or (ii) the ability of the Company to perform its obligations, taken as a whole, under the Transaction Documents. "MATERIAL ADVERSE EFFECT" means a material adverse effect upon (i) the business, operations, assets, condition (financial or otherwise) or properties of the Company and its Subsidiaries, taken as a whole, or (ii) the ability of the Company to perform its obligations, taken as a whole, under the Transaction Documents. "MATERIAL CONTROVERSY" means a controversy that arises among the Company and any of the holders of the Company's outstanding Common Stock in respect of the purchase of the Preferred Stock pursuant to this Agreement, the issuance of the Option Agreement, the potential issuance of the Option Preferred Stock under the Option Agreement, and the proposed issuance and sale by the Company of up to 25,000 shares of the Company's Series C Convertible Preferred Stock to some or all of the lenders under the Senior Loan Agreement. "MULTIEMPLOYER PLAN" means any "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA to which the Company or any ERISA Affiliate makes, is making or is obligated to make contributions or has made or been obligated to make contributions. "OPTION AGREEMENT" means the Option Agreement dated as of the Closing Date among the Company and the Purchasers listed in the signature pages thereto and attached hereto as Exhibit J. "OPTION PREFERRED STOCK" means the Series B Convertible Preferred Stock of the Company or any other capital stock of the Company into which such stock is reclassified or reconstituted. "OPTION STOCK DESIGNATION" means the Certificate of Designation of the Company relating to the Option Preferred Stock to be filed with the Secretary of State of the State of Delaware in accordance with the terms and conditions of the Option Agreement, as subsequently amended, supplemented or otherwise modified. "ORGANIZATIONAL DOCUMENTS" means with respect to a corporation, the articles of incorporation and by-laws of such corporation; with respect to a partnership, the certificate of partnership (or limited partnership, as applicable) and partnership agreement, together with the analogous documents for any corporate or partnership general partner; and in any case, any other document governing the formation and conduct of business by such entity. 5 "OTHER PROPOSAL" has the meaning assigned thereto in Section 7.8 "PBGC" means the Pension Benefit Guaranty Corporation established under Title IV of ERISA or any other governmental agency, department or instrumentality succeeding to its functions. "PERMITTED TRANSFEREE" means (i) any Affiliate of any Purchaser to whom a Purchaser or another Affiliate of any Purchaser transfers Preferred Stock, rights under the Option Agreement, or Option Preferred Stock, (ii) any other Person to whom a Purchaser or an Affiliate of any Purchaser transfers Preferred Stock, rights under the Option Agreement, or Option Preferred Stock with the prior written consent of the Board of Directors and (iii) any Person to whom a transferee described in clause (ii) transfers Preferred Stock, rights under the Option Agreement, or Option Preferred Stock with the prior written consent of the Board of Directors and (iv) any THL Holder (as defined in the Corporate Governance Agreement) and any of the funds affiliated with Bain Capital, Inc. and any general or limited partner of such funds; provided, however, that in no event shall any such transferee or proposed transferee under any of clauses (i), (ii), (iii), or (iv) be a Competitor or Person acting as a representative of a Competitor. No transfer otherwise permissible shall be effective unless the Permitted Transferee agrees in writing expressly for the Company's benefit to be bound by the provisions of this Agreement, and in this event, the transferor shall not be liable for the transferee's performance of its obligations under this Agreement. "PERSON" means any individual, firm, corporation, partnership, trust, limited liability company, incorporated or unincorporated association, joint venture, joint stock company, Governmental Authority or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. "PLAN" means (i) an "employee pension plan" as defined in Section 3(2) of ERISA, (ii) an "employee welfare benefit plan" as defined in Section 3(1) of ERISA or (iii) any other employee benefit or fringe benefit plan or program, whether established by Requirements of Law, a written agreement or other instrument, or custom or informal understanding. "PREFERRED STOCK" means the Series A Convertible Preferred Stock of the Company, or any other capital stock of the Company into which such stock is reclassified or reconstituted. "PROXY STATEMENT" has the meaning assigned thereto in Section 7.7. "PUC" means the public utilities commission for any state or any other jurisdiction, or any successor agency, and any successor, in whole or in part, to its functions or jurisdictions. "PURCHASER(S)" has the meaning assigned thereto in the Preamble and their successors and permitted assigns. 6 "PURCHASER PREFERRED STOCK" means the Series A Preferred Stock and the Option Preferred Stock. "PURCHASER REGULATORY EVENT" means any event in which any Purchaser becomes subject to regulation as a "carrier," a "telephone company," a "common carrier," a "public utility," or otherwise under any applicable law or governmental regulation, federal, state or local, as a result of the purchase of the Preferred Stock pursuant to this Agreement, the assumed purchase of 100,000 shares of Option Preferred Stock pursuant to the Option Agreement at the Closing, and the execution and delivery of the Transaction Documents by the parties thereto at the Closing. "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement dated as of the Closing Date among the Company and the Purchasers listed on the signature pages thereto and attached hereto as Exhibit D. "REGULATION D" means Rule 506 of Regulation D as promulgated by the Commission. "REGULATORY AUTHORIZATIONS" means all approvals, authorizations, licenses, filings, notices, registrations, consents, permits, exemptions, registrations, qualifications, designations, declarations, or other actions or undertakings made by, to or in respect of any telecommunications Governmental Authority, including any certificates of public convenience and all grants, approvals, licenses, filings and registrations from or to the FCC or any PUC or under any Communications Law necessary in order to enable the Company or its Subsidiaries to provide telecommunications service of the type provided or proposed to be provided by such entity as of the date hereof. "REGULATORY EVENT" means any of the following events: (i) the Company or any of its Subsidiaries becomes subject to regulation by any Governmental Authority in any way that is materially different from the regulation existing at the date hereof and that would reasonably be expected to have a Material Adverse Effect, or (ii) the FCC or any PUC issues an order revoking, denying or refusing to renew, or recommending the revocation, denial or non-renewal of, any Regulatory Authorization that would reasonably be expected to have a Material Adverse Effect; provided, however, that the term "Regulatory Event" shall not include (x) any adverse decision by the FCC, any PUC or Governmental Authority regarding reciprocal compensation for enhanced service provider (including Internet service provider) telecommunications traffic or the ability of the Company or any of its Subsidiaries to collect such reciprocal compensation or (y) the FCC, any PUC or Governmental Authority enacts Requirements of Law which restrict, prevent or limit the billing, calculation, collection or payment of reciprocal compensation for enhanced service provider (including Internet service provider) telecommunications traffic. "REPORTABLE EVENT" has the meaning assigned thereto in ERISA for which notice has not been waived by regulation. "REPRESENTATIVES" has the meaning assigned thereto in Section 7.9. "REQUIRED HOLDERS" has the meaning assigned thereto in Section 9.4. 7 "REQUIREMENTS OF LAW" means, with respect to a Person, the Organizational Documents of such Person, and any law, treaty, rule, regulation, right, privilege, qualification, license, permit or franchise or determination of an arbitrator or a court or the FCC, PUC or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject or pertaining to any or all of the transactions contemplated or referred to herein, including all applicable common law, all provisions of all applicable material state and federal constitutions, statutes, rules, regulations and orders of all governmental bodies, all Regulatory Authorizations issued to the Company or its Subsidiaries, all Communications Laws and all Environmental Laws. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SENIOR LOAN AGREEMENT" means the Second Amended and Restated Loan and Security Agreement dated as of December 20, 1999 to which the Company is a party as a borrower, as amended from time to time in accordance with the terms thereof. "SENIOR LOAN DOCUMENTS" means the Senior Loan Agreement and each other Loan Document as defined and referred to in the Senior Loan Agreement, as amended from time to time in accordance with the terms thereof. "SERIES C DESIGNATION" means the Certificate of Designation of the Company relating to the Series C Preferred Stock to be filed with the Secretary of State of the State of Delaware in the form attached hereto as Exhibit K. "SERIES C PREFERRED STOCK" means the Series C Convertible Preferred Stock of the Company or any other capital stock of the Company into which such stock is reclassified or reconstituted. "SERIES C PREFERRED STOCK PURCHASE AGREEMENT" means the Series C Preferred Stock Purchase Agreement in the form attached hereto as Exhibit L. "STOCK OPTION PLAN" means the 1998 Omnibus Stock Plan of the Company as in effect on the date hereof, as it may be amended from time to time, and any and all stock options and other stock-based awards issued pursuant thereto. "SUBSIDIARY" means, as to any Person, (i) any corporation more than fifty percent (50%) of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned such Person and/or one or more Subsidiaries of such Person and (ii) any partnership, limited liability company, association, joint venture or other entity in which such Person and/or one or more Subsidiaries of such Person has more than a 50% equity interest at the time. 8 "TAXES" means all taxes, assessments, fees and other charges levied upon the properties of the Company and its Subsidiaries as shown upon all federal, state and local tax returns and reports, U.S. and non-U.S., required to be filed by such entity. "TAX RETURN" means any return (including any information return), report, statement, form or other document required to be filed with or submitted to any Governmental Authority in connection with the determination, assessment, collection or payment of any Taxes. "TRANSACTION DOCUMENTS" means, collectively, this Agreement, the Certificate of Incorporation, the Certificate of Designation, the Option Stock Designation, the Bylaws, the Corporate Governance Agreement, the Registration Rights Agreement, the Voting and Tag-Along Agreement and the Option Agreement. "UNDERLYING COMMON STOCK" means all shares of Common Stock issued or issuable upon conversion of (i) the Preferred Stock issued pursuant to this Agreement and (ii) the Option Preferred Stock actually issued pursuant to the Option Agreement as of the date of any determination (which number shall be determined, with respect to any given date, based upon the conversion price with respect to the Preferred Stock or Option Preferred Stock, as applicable, in effect as of such date without giving effect to the one year limitation on conversion) without regard to any preferential dividends that accrue or are issued or paid with respect to the Preferred Stock pursuant to the Certificate of Designation or the Option Preferred Stock pursuant to the Option Stock Designation. "UNITED STATES" and "U.S." shall mean the United States of America. "VOTING AND TAG-ALONG AGREEMENT" means the Voting and Tag-Along Agreement dated as of the Closing Date by and among the Purchasers and Richard T. Aab, Melrich Associates, L.P., Tansukh V. Ganatra and SuperSTAR Associates Limited Partnership and attached hereto as Exhibit H. "YEAR 2000 COMPLIANT" means that the computer systems and switches and related equipment and software (i) are capable of recognizing, processing, managing, representing, interpreting, and manipulating correctly date-related data for dates earlier and later than January 1, 2000, (ii) have the ability to provide date recognition for any data element without limitation (including, but not limited to, date-related data represented without a century designation, date-related data whose year is represented by only two digits and date fields assigned special values), (iii) have the ability to automatically function into and beyond the year 2000 without human intervention and without any change in operations associated with the advent of the year 2000, (iv) have the ability to correctly interpret data, dates and time into and beyond the year 2000, (v) have the ability not to produce noncompliance in existing information, nor otherwise corrupt such data into and beyond the year 2000, (vi) have the ability to correctly process after January 1, 2000 data containing dates before that date, and (vii) have the ability to recognize all "leap years," including February 29, 2000. 1.2 ACCOUNTING TERMS. All accounting terms used herein not expressly defined in this Agreement shall have the respective meanings given to them in accordance with sound accounting practice. The term "sound accounting practice" shall mean such accounting practice as, in the opinion of the independent certified public accountants regularly retained by the Company, conforms at the time to GAAP applied on a consistent basis except for changes with which such accountants concur. 9 ARTICLE II PURCHASE AND SALE OF PREFERRED STOCK 2.1 PURCHASE AND SALE OF THE PREFERRED STOCK. Subject to the terms and conditions hereof, the Company agrees to issue to the Purchasers, and each Purchaser agrees severally and not jointly to purchase from the Company, on the Closing Date, the number of shares of the Preferred Stock set forth opposite such Purchaser's name on Schedule 1 for a purchase price of $1,000 per share for an aggregate purchase price of $200,000,000. The Preferred Stock shall have the powers, rights and preferences as set forth in the Certificate of Designation, which Certificate of Designation will be duly adopted by the Board of Directors prior to the Closing Date in accordance with the provisions of Section 151 of the Delaware General Corporation Law of the State of Delaware (the "DGCL") and will be filed with the Secretary of State of the State of Delaware prior to or contemporaneously with the Closing Date pursuant to the DGCL. A true and correct copy of the Certificate of Incorporation of the Company as currently in effect prior to the adoption and filing of the Certificate of Designation has heretofore been furnished to the Purchasers by the Company. 2.2 CLOSING. Subject to the terms and conditions of this Agreement, the issuance and purchase of the Preferred Stock shall take place at the closing (the "Closing") to be held at the offices of Moore & Van Allen, PLLC, Charlotte, North Carolina, at 10:00 a.m., on April __, 2000, or at such other time and place as the Company and the Purchasers may agree in writing (the "Closing Date"). At the Closing, the Company shall deliver to the Purchasers certificates representing the 200,000 shares of the Preferred Stock against delivery to the Company by the Purchasers of the purchase price therefor by wire transfer of immediately available funds. ARTICLE III CONDITIONS TO THE OBLIGATION OF THE PURCHASERS TO CLOSE The obligation of each Purchaser to purchase the number of shares of Preferred Stock set forth opposite its name on Schedule 1 at the Closing, to pay the purchase price therefor at the Closing and to perform any other obligations hereunder shall be subject to the reasonable satisfaction as determined by each Purchaser of the following conditions on or before the Closing Date: 3.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company contained in Section 5 hereof shall be true and correct (i) when made and (ii) on and as of the Closing Date as if made on and as of such date (except for representations and warranties that speak as of a specific date in which case the representation or warranty only need be true and correct as of the specified date). 10 3.2 COMPLIANCE WITH THIS AGREEMENT. The Company shall have performed and complied in all material respects with all of the agreements, obligations, covenants and conditions set forth in this Agreement or any other Transaction Document or contemplated herein or therein that are required to be performed or complied with by the Company on or before the Closing Date. 3.3 OFFICER'S CERTIFICATE. Each Purchaser shall have received a certificate dated as of the Closing Date from the chief executive officer and chief financial officer of the Company, substantially in the form of Exhibit E, to the effect that (a) all representations and warranties of the Company contained in this Agreement and the Option Agreement are true and correct, (b) the Company is not in violation in any material respect of any of the covenants contained in this Agreement, (c) all conditions precedent to the Closing to be performed by the Company have been duly performed in all material respects, and (d) no Material Controversy has occurred prior to Closing. 3.4 SECRETARY'S CERTIFICATE, GOOD STANDING CERTIFICATES. Each Purchaser shall have received a certificate from the Company dated the Closing Date and signed by the Secretary or an Assistant Secretary of the Company, substantially in the form of Exhibit F, certifying (a) that the attached copies of the Certificate of Incorporation, Bylaws or other applicable governance documents and resolutions of the Board of Directors of the Company (i) authorizing the issuance of the Preferred Stock pursuant to this Agreement, the issuance of the Option Preferred Stock pursuant to the Option Agreement and the issuance of any Common Stock upon conversion thereof and (ii) approving this Agreement, each of the other Transaction Documents and the transactions contemplated hereby and thereby to which it is a party, are all true, complete and correct and remain unamended and in full force and effect, (b) as to the incumbency and specimen signature of each officer of the Company executing this Agreement and the other Transaction Documents to which it is a party and any other document delivered in connection herewith or therewith on behalf of the Company and (c) as to the good standing of the Company and its Subsidiaries in each such company's state of incorporation. 3.5 TRANSACTION DOCUMENTS. Each Purchaser shall have received and approved true, complete and correct copies of the executed Transaction Documents, each of which will be in full force and effect as of the Closing Date. 3.6 PAYMENT OF FEES. There shall have been paid by the Company to Bain Capital Partners VI, L.P. a funding fee equal to 1% of the amount funded by Bain Capital CLEC Investors, L.L.C. at the Closing, (b) to Thomas H. Lee Equity Advisors IV, L.P. a funding fee equal to 1% of the amount funded by all Purchasers other than Bain Capital CLEC Investors, L.L.C. at the Closing and (c) to each Purchaser all legal fees and expenses required to be paid or reimbursed to such Purchaser by the Company pursuant to Section 9.11 hereof. In addition, the Company shall have paid in full all fees due to First Union Securities, Inc. in connection with the transactions contemplated by this Agreement as of the Closing. 11 3.7 PURCHASE PERMITTED BY APPLICABLE LAWS. The acquisition of and payment for the Preferred Stock to be acquired by each Purchaser at the Closing and the consummation of the transactions contemplated hereby at the Closing (a) shall not be prohibited by any Requirement of Law, and (b) shall not subject any Purchaser to any penalty or, in its reasonable judgment, other adverse condition under or pursuant to any Requirement of Law. 3.8 OPINIONS OF COUNSEL. The Purchasers shall have received (a) from Moore & Van Allen, PLLC, special legal counsel for the Company, a favorable opinion as of the Closing Date, to the effect that: (i) the Company is duly organized as a corporation under the DGCL; (ii) the Company is validly existing and in good standing in the jurisdiction of its incorporation and has the requisite corporate power to own or lease and operate its property, and to carry on its business as currently conducted; (iii) each of this Agreement and the other Transaction Documents executed by the Company is a legal, valid and binding obligation of the Company enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws affecting the enforcement of creditors' rights generally or by general equitable principles relating to enforceability; (iv) the Company's execution, delivery and performance of this Agreement and the other Transaction Documents to which it is a party were duly authorized by all corporate actions required under its Organizational Documents and the DGCL; (v) the issuance of the Preferred Stock and Option Preferred Stock, including the issuance of Preferred Stock and Option Preferred Stock as preferential dividends pursuant to the Certificate of Designation and the Option Stock Designation, has been duly authorized by all corporate action required under the Company's Organizational Documents; (vi) each of the Certificate of Designation and the Option Stock Designation has been duly authorized by all corporate action required under the Company's Organizational Documents and the Certificate of Designation has been filed with the Secretary of State of Delaware; (vii) the execution, delivery and performance of the Transaction Documents to which the Company is a party will not (x) violate the Certificate or Bylaws or (y) violate, to such counsel's knowledge, any order, writ, injunction or decree of any Governmental Authority; (viii) upon issuance at the Closing, the Preferred Stock will be validly issued, fully paid and nonassessable, and will not have been issued in violation of or be subject to any preemptive rights, and the issuance of the shares of Common Stock issuable upon conversion of the Preferred Stock has been duly authorized and such shares have been duly reserved for issuance, and upon issuance will be validly issued, fully paid and nonassessable, and will not have been issued in violation of or be subject to any preemptive rights; and (ix) upon issuance pursuant to the terms of the Option Agreement, the Option Preferred Stock will be validly issued, fully paid and nonassessable, and will not have been issued in violation of or be subject to any preemptive rights, and the issuance of the shares of Common Stock issuable upon conversion of the Option Preferred Stock has been duly authorized and such shares have been duly reserved for issuance, and upon issuance will be validly issued, fully paid and nonassessable, and will not have been issued in violation of or be subject to any preemptive rights; and (b) from Swidler Berlin Shereff Friedman, LLP, special regulatory counsel to the Company, a favorable opinion as of the Closing Date to the effect that: (i) no consents or approvals of the FCC or any PUC are required for the purchase of the Preferred Stock pursuant to this Agreement, the purchase of 100,000 shares of Option Preferred Stock at the Closing pursuant to the Option Agreement, and the execution and delivery at the Closing of the Transaction Documents by the parties thereto; and (ii) neither the execution and delivery of this Agreement or the Option Agreement by the Company and the Purchasers, the purchase of the Preferred Stock and the purchase of 100,000 shares of Option Preferred Stock at the Closing pursuant to the terms thereof, nor the execution and delivery at the Closing of the other Transaction Documents by the parties thereto, will, in and of themselves, subject the Purchasers to regulation as common carriers or telephone companies under the Communications Act (as defined in such opinion) or State Telecommunications Act (as defined in such opinion) or State Telecommunications Laws (as defined in such opinion) in those states in which the Company and its Subsidiaries are certified to operate as of the Closing. For purposes of the opinion to be delivered pursuant to clause (b), Swidler Berlin Shereff Friedman, LLP may assume that 100,000 shares of Option Preferred Stock are purchased under the Option Agreement at the Closing. 12 3.9 HSR CLEARANCE. Any required clearance under the Hart-Scott-Rodino Act to sell the Preferred Stock upon the terms of this Agreement shall have been obtained. 3.10 CERTIFICATE OF DESIGNATION. On or prior to the Closing, the Certificate of Designation shall have been duly filed with the Secretary of State of the State of Delaware, all in accordance with the applicable provisions of the DGCL, and the Certificate of Designation shall constitute a legal and valid amendment of the Certificate of Incorporation and, as of the Closing, the Certificate of Incorporation shall not have been otherwise amended. 3.11 PREFERRED STOCK CERTIFICATE. Each Purchaser shall have received from the Company a duly executed preferred stock certificate, substantially in the form of Exhibit G, dated the Closing Date representing the number of shares of Preferred Stock purchased by it at the Closing. 3.12 REQUIRED CONTRACTUAL CONSENTS. The Company shall have received any consents required pursuant to the terms of the Senior Loan Agreement or any other material Contractual Obligation in connection with the execution and delivery by the Company of this Agreement and the other Transaction Documents and the consummation of the transactions to be performed by the Company contemplated by the Transaction Documents. 3.13 VOTING AND TAG-ALONG AGREEMENT. The Purchasers shall have received a Voting and Tag-Along Agreement, substantially in the form of Exhibit H, dated the Closing Date duly executed by all parties thereto. 3.14 AMENDMENT TO SENIOR LOAN AGREEMENT. Each Purchaser shall have received a copy of an amendment to the Senior Loan Agreement, substantially in the form of Exhibit I, duly executed by all parties thereto. 3.15 REQUIRED GOVERNMENTAL CONSENTS. The Company shall have received all Regulatory Authorizations and other Governmental Authority approvals or consents required in connection with the execution and delivery by the Company of this Agreement and the other Transaction Documents and the consummation of the transactions to be performed by the Company contemplated by the Transaction Documents. 13 3.16 REGULATORY EVENTS. No Regulatory Event or Purchaser Regulatory Event shall have occurred and be continuing or shall occur as a result of the purchase of the Preferred Stock at the Closing. 3.17 AMENDMENT OF BYLAWS. The Bylaws shall have been amended (i) to permit the holders of at least 50,000 of the outstanding shares of Purchaser Preferred Stock to call for a meeting of the Company's stockholders, (ii) to permit any two directors to call a meeting of the Company's board of directors, (iii) to establish the size of the Company's board at seven directors, (iv) to require regular meetings of the Company's board of directors to be held at least once during each of the Company's fiscal quarters and (v) to provide that no amendment to the preceding provisions of the Bylaws shall be effective without the approval of holders of 50,000 of the outstanding shares of Purchaser Preferred Stock. The Bylaws as so amended shall be in full force and effect as of the Closing and shall not have been further amended. 3.18 OPTION AGREEMENT. The Purchasers shall have received an Option Agreement, substantially in the form of Exhibit J, dated the Closing Date duly executed by all parties thereto. 3.19 CORPORATE GOVERNANCE AGREEMENT. The Purchasers shall have received a Corporate Governance Agreement, substantially in the form of Exhibit C, dated the Closing Date duly executed by all parties thereto. 3.20 REGISTRATION RIGHTS AGREEMENT. The Purchasers shall have received a Registration Rights Agreement, substantially in the form of Exhibit D, dated the Closing Date duly executed by all parties thereto. 3.21 LISTING OF SHARES. The Company shall have filed with The Nasdaq Stock Market notice of the maximum number of shares of Common Stock potentially issuable pursuant to the terms of the Certificate of Designation and the Option Stock Designation other than any such shares as may be issuable upon an adjustment in the conversion price of the Preferred Stock or the Option Preferred Stock. 3.22 AMENDMENT TO CLASS B STOCKHOLDERS AGREEMENT. The Purchasers shall have received, in form and substance reasonably satisfactory to the Purchasers, the Second Amended and Restated Stockholders' Agreement among the holders of the Class B Common Stock duly executed by all such holders and in full force and effect as of the Closing Date. ARTICLE IV CONDITIONS TO THE OBLIGATION OF THE COMPANY TO CLOSE The obligations of the Company to issue and sell the Preferred Stock at the Closing and to perform its other obligations hereunder at the Closing shall be subject to the satisfaction as determined by the Company of the following conditions on or before the Closing Date: 14 4.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations and warranties of each of the Purchasers contained in Section 6 hereof shall be true and correct on and as of the Closing Date as if made on and as of such date. 4.2 COMPLIANCE WITH THIS AGREEMENT. Each of the Purchasers shall have performed and complied in all material respects with all of its agreements and conditions set forth or contemplated herein that are required to be performed or complied with by each of the Purchasers on or before the Closing Date. 4.3 ISSUANCE PERMITTED BY REQUIREMENTS OF LAWS. The issuance of the Preferred Stock to be issued by the Company hereunder at the Closing and the consummation of the transactions contemplated hereby at the Closing (a) shall not be prohibited by any Requirement of Law and (b) shall not subject the Company to any penalty or, in its reasonable judgment, other onerous condition under or pursuant to any Requirement of Law. 4.4 HSR CLEARANCE. Any required clearance under the Hart-Scott-Rodino Act to acquire the Preferred Stock upon the terms of this Agreement shall have been obtained. 4.5 OPINION OF COUNSEL. The Purchasers shall have delivered to the Company an opinion dated the Closing Date, from the Purchasers' counsel, Ropes & Gray, in form and substance reasonably acceptable to the Company and its counsel, to the effect that: (i) each Purchaser's execution, delivery and performance of this Agreement and the other Transaction Documents was duly authorized by the requisite corporate, fiduciary, limited liability company or partnership action required under its Organizational Documents and applicable state law; (ii) the officer, partner, trustee, managing member or managing director signing this Agreement and all other documents or instruments contemplated hereby in its name was duly authorized to do so; and (iii) each of this Agreement and the other Transaction Documents executed by such Purchaser is a legal, valid and binding obligation of such Purchaser enforceable in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws affecting the enforcement of creditors' rights generally or by general equitable principles relating to enforceability. 4.6 TRANSACTION DOCUMENTS. The Company shall have received copies of each of the Transaction Documents duly executed by all parties thereto. ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to the Purchasers, after giving effect to the transactions contemplated by this Agreement and the other Transaction Documents, as follows: 5.1 ORGANIZATION AND QUALIFICATION. Each of the Company and its Subsidiaries is duly organized, validly existing and in good standing under the laws of its state of organization. Each of the Company and its Subsidiaries is duly qualified to do business and in good standing in each jurisdiction in which the failure to receive or retain such qualification would reasonably be expected to have a Material Adverse Effect. As to any such entity that is a limited liability company, each manager is duly organized, validly existing, in good standing under the laws of its state of organization, and duly qualified to do business and in good standing in each jurisdiction in which the failure to receive or retain such qualification would reasonably be expected to have a Material Adverse Effect. 15 5.2 AUTHORITY AND AUTHORIZATION. Each of the Company and its Subsidiaries has all requisite corporate or limited liability company right, power, authority and legal right to carry on its business, to own or lease its properties and to execute and deliver and perform its obligations under this Agreement, and, in the case of the Company, to execute and deliver and to perform its obligations under the Transaction Documents and consummate the transactions contemplated by the Transaction Documents. The Company's execution, delivery and performance of the Transaction Documents and any other documents or instruments to be delivered pursuant thereto to which it is a party have been duly and validly authorized by all necessary corporate proceedings on the part of the Company. Upon issuance, the Preferred Stock, the Option Preferred Stock and any shares of such stock issuable as preferential dividends pursuant to the terms thereof, will be validly issued, fully paid and nonassessable, and will not have been issued in violation of or subject to any preemptive rights, and the shares of Common Stock issuable upon conversion of the Preferred Stock, the Option Preferred Stock and any shares of stock issuable as preferential dividends pursuant to the terms thereof, have been duly authorized and, as of the Closing, will be reserved for issuance, and upon issuance will be validly issued, fully paid and nonassessable, and will not have been issued in violation of or be subject to any preemptive rights. 5.3 EXECUTION AND BINDING EFFECT. This Agreement and all other Transaction Documents to which the Company is a party have been or will be duly and validly executed and delivered by the Company, and constitute or, when executed and delivered, will constitute, the legal, valid and binding obligations of the Company enforceable in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, receivership, moratorium or other laws affecting creditors' rights generally. 5.4 GOVERNMENTAL AUTHORIZATIONS. Except as set forth on Schedule 5.4, no authorization, consent, approval, license, exemption or other action by, and no registration, qualification, designation, declaration or filing with, any Governmental Authority is or will be necessary in connection with the execution and delivery of this Agreement or any other Transaction Documents by the Company, consummation by the Company of the transactions herein or therein contemplated, performance of or compliance by the Company with the terms and conditions hereof or thereof or the legality, validity and enforceability hereof or thereof. 5.5 REGULATORY AUTHORIZATIONS. Each of the Company and its Subsidiaries holds all Regulatory Authorizations necessary for the conduct of its business as now conducted and has conducted its business in substantial compliance with such Regulatory Authorizations. All such Regulatory Authorizations are in full force and effect, are subject to no further administrative or judicial review and are therefore final. The Regulatory Authorizations are listed on Schedule 5.5. No Regulatory Event has occurred and is continuing and no Regulatory Event will occur as a result of the consummation of the transactions contemplated by the Transaction Documents. 16 5.6 AGREEMENTS AND OTHER DOCUMENTS. As of the date hereof, the Company has provided to the Purchasers, accurate and complete copies (or summaries) of all of the following agreements or documents to which the Company or any of its Subsidiaries is subject and each of which is listed on Schedule 5.6: (a) instruments or documents evidencing Indebtedness of the Company or its Subsidiaries and any security interest granted by the Company or its Subsidiaries with respect thereto; and (b) instruments and agreements evidencing the issuance of any equity securities, warrants, rights or options to purchase equity securities of the Company or its Subsidiaries. 5.7 ABSENCE OF CONFLICTS. The execution and delivery of this Agreement and the other Transaction Documents to which the Company is a party, the consummation by the Company of the transactions herein or therein contemplated and the performance of or compliance with the terms and conditions hereof or thereof by the Company will not, directly or indirectly (and with or without notice or the passage of time or both), (a) violate any Requirements of Law applicable to the Company or its Subsidiaries; (b) conflict with or result in a breach of or a default under the Organizational Documents of the Company or its Subsidiaries or any Contractual Obligation to which the Company or its Subsidiaries is a party or by which such entity or its properties are bound; (c) result in the creation or imposition of any Lien upon any property (now owned or hereafter acquired); or (d) violate or conflict with, or give any Governmental Authority the right to challenge the transactions contemplated by the Transaction Documents or revoke, withdraw, suspend, cancel, terminate or modify, any Regulatory Authorization issued to or held by the Company or any Subsidiary (other than as set forth on Schedule 5.7). 5.8 FINANCIAL STATEMENTS. The Company has furnished to the Purchasers the most recent annual financial statements (the "Financial Statements"), certified by the Chief Financial Officer or the Vice-President and Treasurer, including balance sheets and related statements of income, retained earnings and cash flow, as described on Schedule 5.8. Such Financial Statements (including the notes thereto) present fairly the financial condition of the Company and its Subsidiaries on a consolidated basis as of the end of such fiscal period and the results of its operations and the changes in its financial position for the fiscal period then ended, all in conformity with GAAP applied on a basis consistent with that of the preceding fiscal period. Neither the Company nor its Subsidiaries has incurred any obligation or liability (absolute, contingent, liquidated or unliquidated) material to the Company and its Subsidiaries, taken as a whole, except for (i) those reflected in the Financial Statements on Schedule 5.8, (ii) those that have been incurred or have arisen in the ordinary course of business since December 31, 1999, (iii) those disclosed in the Company's filings with the Commission, (iv) those listed on schedules attached to this Agreement and (v) those permitted or arising under this Agreement and the other Transaction Documents. The Company and each of its Subsidiaries have made and kept books, records and accounts which, in reasonable detail, accurately and fairly reflect their respective transactions and dispositions of their assets. 17 5.9 DISCLOSURE. No representation or warranty made by the Company in this Agreement is or was false or misleading as of the date made in any material respect (including by omission of material information necessary to make such representation, warranty or statement not misleading). 5.10 COMPLIANCE WITH MATERIAL AGREEMENTS. As of the date hereof, except as set forth on Schedule 5.10, neither the Company nor any of its Subsidiaries, or to the Company's knowledge, any other party is in violation of any term of any material Contractual Obligation to which it is a party or by which it or its properties are bound that would reasonably be expected to have a Material Adverse Effect. To the Company's knowledge, except as set forth on Schedule 5.10, no event has occurred or circumstance exists that (with or without notice or the passage of time or both) would result in a default in a material respect under a material Contractual Obligation or would give any party to a Contractual Obligation the right to exercise any remedy under such Contractual Obligation or to cancel, terminate or modify such Contractual Obligation which would reasonably be expected to have a Material Adverse Effect. Except as set forth on Schedule 5.10, neither the Company nor any Subsidiary has given notice to or received notice from any other Person relating to an alleged, possible or potential default under any material Contractual Obligation which would reasonably be expected to have a Material Adverse Effect. 5.11 LABOR MATTERS. As of the date hereof, (a) no strikes or other material labor disputes against either the Company or its Subsidiaries are pending or, to either the Company or its Subsidiaries' knowledge, threatened; (b) hours worked by and payment made to employees of the Company or any of its Subsidiaries comply with the Fair Labor Standards Act and each other federal, state, local or foreign law applicable to such matter; (c) all payments due from either the Company or its Subsidiaries for employee health and welfare insurance have been paid or accrued as a liability on the books of such entity; (d) neither the Company nor any of its Subsidiaries is a party to or bound by any collective bargaining agreement, management agreement, consulting agreement or any employment agreement (e) there is no organizing activity involving either the Company or its Subsidiaries pending or, to either the Company or its Subsidiaries' knowledge, threatened by any labor union or group of employees; (f) there are no representation proceedings pending or, to any either the Company or its Subsidiaries' knowledge, threatened with the National Labor Relations Board, and no labor organization or group of employees of either the Company or its Subsidiaries has made a pending demand for recognition; and (g) except as set forth in Schedule 5.12, there are no complaints or charges against either the Company or its Subsidiaries pending or, to the knowledge of the executive officers of the Company, threatened to be filed with any Governmental Authority or arbitrator based on, arising out of, in connection with, or otherwise relating to the employment or termination of employment by either the Company or its Subsidiaries of any individual which, if adversely determined, would reasonably be expected to have a Material Adverse Effect. 5.12 LITIGATION. (a) Except as set forth in Schedule 5.12, there is no pending action, suit or, to the Company's knowledge, threatened proceeding by or before any Governmental Authority against the Company or any of its Subsidiaries or affecting any of its properties, rights or licenses which if adversely decided would reasonably be expected to have a Material Adverse Effect. To the Company's knowledge, no event has occurred or circumstance exists that may give rise to or serve as a basis for any action, suit or proceeding to be brought or threatened against the Company or any Subsidiary, in which an outcome adverse to the Company or Subsidiary would reasonably be expected to have a Material Adverse Effect. There is no pending or, to the Company's knowledge, threatened action, suit or proceeding that challenges the transactions contemplated by the Transaction Documents or that would have the effect of preventing, delaying, making illegal or otherwise interfering with the transactions contemplated by the Transaction Documents. 18 (b) Neither the Company nor any Subsidiary is in violation of any applicable Requirements of Law the consequences of the violation of which would reasonably be expected to have a Material Adverse Effect. To the Company's knowledge, no event has occurred or circumstance exists that (with or without notice or the passage of time or both) would constitute or result in a violation by the Company or any Subsidiary of any applicable Requirements of Law the consequences of the violation of which would reasonably be expected to have a Material Adverse Effect. 5.13 RIGHTS TO PROPERTY. Each of the Company and its Subsidiaries has good and marketable title, subject only to the encumbrances permitted under the Senior Loan Agreement, to all personal property purported to be owned by it and to all property reflected in the most recent balance sheet referred to in Section 5.8 (except as sold or otherwise disposed of in the ordinary course of business as no longer used or useful in the conduct of the business). Each lease of real and personal property to which the Company or any of its Subsidiaries is a party is in full force and effect and, except for such defaults as would not have a Material Adverse Effect, is not subject to termination because of default or otherwise. The Company and its Subsidiaries do not own nor have they entered into any contract or commitment to acquire real property or any interest therein other than such Leases. 5.14 TAXES. (a) Except as set forth in Schedule 5.14, all Tax Returns required to be filed by each of the Company and its Subsidiaries have been properly prepared, executed and filed and were correct and complete in all material respects, and all Taxes upon such entity or upon any of its respective properties, incomes, sales or franchises which are shown to be due and payable thereon have been paid, other than Taxes or assessments the validity or amount of which such entity is contesting in good faith. The Tax reserves and provisions for Taxes on the books of each of the Company and its Subsidiaries are adequate for all open years and for its current fiscal period. Except as set forth on Schedule 5.14, none of these Tax Returns is currently under audit or examination, and neither the Company nor any Subsidiary has received notice from any Governmental Authority that (i) any Tax Return that it filed will be audited or examined or that (ii) it is or may be liable for additional Taxes in respect of any Tax Return or for payment of Taxes in respect of a Tax Return that it did not file (because, for example, it believed that it was not subject to taxation by the jurisdiction in question). (b) Except as set forth on Schedule 5.14, the Company and its Subsidiaries have withheld and paid to the proper Governmental Authorities all Taxes that they were required to withhold and pay in respect of compensation or other amounts paid to any employee or independent contractor. 19 (c) Except as set forth on Schedule 5.14, neither the Company nor any Subsidiary has extended the time in which to file any Tax Return, waived the statute of limitations for any Tax or agreed to any extension of time for a Tax assessment or deficiency. 5.15 NO MATERIAL ADVERSE CHANGE. Since December 31, 1999, (i) there has been no Material Adverse Change and (ii) except as set forth on Schedule 5.15 and the transactions contemplated by this Agreement and the other Transaction Documents, the Company and its Subsidiaries have operated their business in the ordinary course of business in all material respects. 5.16 NO BROKERAGE FEES. Except as set forth on Schedule 5.16, no brokerage or other fee, commission or compensation is to be paid by the Company or any Subsidiary to any Person in connection with the transactions hereunder except as contemplated herein. 5.17 ERISA. (a) In the case of each Plan that the Company or any Subsidiary maintains or contributes to (or ever maintained or contributed to): (i) the Plan (and each related trust or insurance policy) complies (or complied) in form and in operation in all material respects with the applicable requirements of ERISA and the Code, as the case may be; (ii) all required contributions to or premiums or other payments in respect of the Plan have been paid, and all required reports and descriptions have been filed with the proper Governmental Authority or distributed to participants as appropriate; (iii) there have been no "prohibited transactions' (as defined in Section 406 of ERISA and Section 4975 of the Code) in respect of the Plan; (iv) no action, suit, proceeding, arbitration, hearing or investigation in respect of the administration of the Plan or the investment of Plan assets is pending or, to the Company's knowledge, threatened, and to the Company's knowledge, there is no basis for any such action, suit, proceeding, arbitration, hearing or investigation; and (v) no Plan is subject to Title IV of ERISA. (b) Except to the extent required by Section 4980B of the Code, neither the Company nor any Subsidiary provides health or other welfare benefits to any retired or former employee or is obligated to provide health or other welfare benefits to any active employee following his or her retirement or other termination of service. 5.18 INTELLECTUAL PROPERTY. Each of the Company and its Subsidiaries owns or possesses the right to use all patents, trademarks, service marks, trade names, copyrights, know-how, franchises, software and software licenses used in or necessary for the operation of its business as currently conducted, free from burdensome restrictions except where such failure to own or possess the right to use would not reasonably be expected to have a Material Adverse Effect. All such rights are described on Schedule 5.18. Each executive officer and senior manager of the Company and its Subsidiaries has executed and delivered to the Company a confidentiality agreement. To the Company's knowledge, no present or former executive officer or senior manager has breached any such agreement. 20 5.19 ENVIRONMENTAL. Each of the Company and its Subsidiaries is in compliance with all Environmental Laws applicable to such entity or its business except for such non-compliances as in the aggregate would not reasonably be expected to have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries has received notice of, or is aware of, any violation or alleged violation, or any liability or asserted liability, under any Environmental Law, with respect to such entity or its business or its premises. The only premises occupied by the Company and its Subsidiaries are office spaces in multi-tenant commercial office buildings. 5.20 SUBSIDIARIES. Neither the Company nor its Subsidiaries has any Subsidiaries, other than the Subsidiaries listed on Schedule 5.20 and all such Subsidiaries are wholly-owned, directly or indirectly, by the Company. 5.21 TRANSACTIONS WITH AFFILIATES. No Affiliate and no officer or director of either the Company or any of its Subsidiaries or any individual related by blood, marriage, adoption or otherwise to any such Affiliate, officer or director, or any Person in which any such Affiliate, officer, director or individual related thereto owns any material beneficial interest, is a party to any agreement, contract, commitment or transaction with the Company or any of its Affiliates or has any material interest in any material property used by the Company or any of its Affiliates, except as set forth on Schedule 5.21. 5.22 CAPITALIZATION. As of the Closing Date, the authorized capital stock of the Company and its Subsidiaries and the issued and outstanding shares thereof are as described on Schedule 5.22. As of the Closing Date, all outstanding shares of capital stock of the Company and its Subsidiaries will be duly authorized and validly issued, fully paid, nonassessable and free and clear of any Lien created by the Company or any Subsidiary thereof (other than Liens under the Senior Loan Documents). Except as described in Schedule 5.22, no other class of capital stock or other ownership interests of the Company or its Subsidiaries are authorized or outstanding. Except as described in Schedule 5.22, neither the Company nor any Subsidiary is subject to any obligation (contingent or otherwise) to repurchase, redeem or otherwise acquire its capital stock or any warrants, options or other rights to acquire its capital stock. The Company does not have any outstanding securities convertible into capital stock of the Company (other than the Class B Common Stock and, as of the Closing, the Preferred Stock); and except for shares of Common Stock reserved for issuance upon the exercise of outstanding warrants or in connection with the Company Stock Option Plan, the Company does not have any shares of capital stock reserved for issuance (other than shares of Common Stock reserved for issuance upon conversion of the Class B Common Stock and, as of the Closing, upon conversion of the Preferred Stock). Except as set forth on Schedule 5.22 and other than the Company's outstanding warrants and stock options and this Agreement, the Company does not have any commitment to authorize, issue or sell any of its capital stock or securities convertible into or exchangeable for any of its capital stock. Neither the Company nor any of its Subsidiaries is a party to any "phantom stock", employee stock option plan, other equity-based incentive plan or similar agreement, other than the Company Stock Option Plan. Schedule 5.22 sets forth the number of shares of capital stock reserved for issuance upon the exercise of options granted or available to be granted under the Company Stock Option Plan. Schedule 5.22 also lists all of the Company's outstanding warrants to purchase capital stock. Except as set forth on Schedule 5.22, there are no preemptive or similar rights to purchase or otherwise acquire equity securities of, or interests in, the Company or any of its Subsidiaries pursuant to any Requirements of Law or Contractual Obligations applicable to the Company or any of its Subsidiaries. There are no existing rights with respect to registration or sale or resale under the Securities Act or the securities or blue sky laws of any state or jurisdiction of any securities of the Company or any of its Subsidiaries. The shares of Preferred Stock to be issued to each Purchaser on the Closing Date, and any additional shares of Preferred Stock to be issued as preferential dividends pursuant to the terms thereof will, upon issuance to such Purchaser, have the designations, preferences, qualifications, limitations, restrictions and such special and relevant rights as are set forth in the Certificate of Designation and the DGCL. 21 5.23 COMMISSION FILINGS. Since April 23, 1998 (the date of the Company's initial public offering), the Company has filed with the Commission, on a timely basis, all registration statements, reports on Form 10-K, 10-Q and 8-K, proxy statements and information statements, and other documents that it was required to file under the Securities Act or the Exchange Act. As of the respective dates of such filings, none of the Company's filings with the Commission contained (and the Company's most recent Form 10-K does not contain) an untrue statement of a material fact or omitted (and the Company's most recent Form 10-K does not omit) to state any material fact necessary to make any statement of a material fact that it contained, in light of the circumstances in which made, not misleading; and when filed with the Commission, each of such filings with the Commission complied in all material respects with the applicable requirements of the Securities Act or Exchange Act, as applicable. The Company is eligible to file a registration statement on Form S-3 and has taken all actions which would be required to permit sales of its securities under Rule 144 under the Securities Act. 5.24 INVESTMENT COMPANY; PUBLIC UTILITY HOLDING COMPANY. Neither the Company nor any of its Subsidiaries is an "investment company" or a "company controlled by an investment company" or an "affiliated person" or "promoter" or "principal underwriter" for, an "investment company," within the meaning of the Investment Company Act of 1940, as amended, or a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," within the meaning of the Public Utility Holding Company Act of 1935, as amended. 5.25 SECURITIES ACT. Based upon the representations and warranties of each Purchaser in Section 6 of this Agreement, (i) the Preferred Stock to be issued pursuant to the terms of this Agreement, any Preferred Stock to be issued as preferential dividends pursuant to the terms thereof and the Common Stock issuable upon conversion of such Preferred Stock and (ii) the issuance by the Company thereof, are not required to be registered under the Securities Act or under the securities or blue sky laws of any state or jurisdiction. 22 5.26 BOOKS AND RECORDS. The minute books of the Company and of each of the Subsidiaries contain, in all material respects, true, complete and accurate records of all meetings and other corporate actions of each of their respective stockholders, partners, members, board of directors and all committees, if any, appointed by its board of directors in each case, since the later of (x) the formation of the Company or such Subsidiary or (y) the date of the Company's initial public offering, and accurate and complete copies thereof have been made available to the Purchasers. 5.27 CERTAIN PAYMENTS. Other than discounts, rebates and incentives provided to customers and commissions and similar compensation paid to sales agents in the ordinary course of business, neither the Company nor any Subsidiary nor any officer, director, employee or agent of the Company or any Subsidiary or, to the Company's knowledge, any other Person associated with or acting for or on behalf of the Company or any Subsidiary, has directly or indirectly made or paid any contribution, gift, bribe, rebate, payoff, kickback or other payment (whether in money, property or services or any other form) to any Person (i) in order to gain or pay for favorable treatment in obtaining business or special concessions or (ii) in violation of any Requirements of Law (including Section 30A of the Exchange Act). 5.28 YEAR 2000 COMPLIANCE. The computer systems and switches of the Company (including all software, hardware, workstations and related components, automated devices, embedded chips and other date sensitive equipment) are Year 2000 Compliant except where the failure to be Year 2000 Compliant would not have a Material Adverse Effect. 5.29 TRADE RELATIONS. Except as set forth on Schedule 5.29, there exists no actual or, to the knowledge of the Company, threatened termination, cancellation or limitation of, or any modification or change in, the business relationship between the Company or any of its Subsidiaries and any customer or supplier that would reasonably be expected to have a Material Adverse Effect or to prevent the Company or any of its Subsidiaries from conducting their business after the consummation of the transactions contemplated by this Agreement in substantially the same manner as it is currently being conducted or is proposed to be conducted. ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS Each Purchaser as to itself and not as to any other Purchaser hereby severally represents and warrants to the Company, as appropriate, as follows: 6.1 AUTHORIZATION; NO CONTRAVENTION. Such Purchaser (unless an individual) is duly organized, validly existing and in good standing as a corporation, limited liability company or general or limited partnership under the laws of the state of its incorporation or formation. The execution, delivery and performance by such Purchaser of this Agreement (a) is within the such Purchaser's power and authority and has been duly authorized by all necessary partnership, company or corporate action, (b) does not contravene the terms of such Purchaser's organizational documents or any amendment thereof and (c) will not violate, conflict with or result in any breach or contravention of any material Contractual Obligation of such Purchaser, or any material Requirement of Law directly relating to such Purchaser. 23 6.2 BINDING EFFECT. This Agreement has been duly executed and delivered by such Purchaser, and this Agreement constitutes the legal, valid and binding obligation of such Purchaser enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws affecting the enforcement of creditors' rights generally or by general equitable principles relating to enforceability. 6.3 ACCREDITED INVESTOR; PURCHASE FOR OWN ACCOUNT. Such Purchaser is an "accredited investor" within the meaning of Regulation D under the Securities Act. The Preferred Stock to be issued pursuant to the terms of this Agreement, any Preferred Stock to be issued as preferential dividends pursuant to the terms thereof and the shares of Common Stock to be issued upon conversion of such Preferred Stock are being or will be acquired for its own account and with no intention of distributing or reselling such securities or any part thereof in any transaction that would be in violation of the Securities Act or the securities laws of any state, without prejudice, however, to the rights of such Purchaser at all times to sell or otherwise dispose of all or any part of such Preferred Stock or any shares of Common Stock under an effective registration statement under the Securities Act, or under an exemption from such registration available under the Securities Act. If such Purchaser should in the future decide to dispose of such Preferred Stock or any shares of Common Stock issued upon conversion of the Preferred Stock, such Purchaser understands and agrees that it may do so only in compliance with the Securities Act and applicable state securities laws, as then in effect. Such Purchaser agrees to the imprinting, so long as required by law, of a legend on certificates representing such Preferred Stock or any shares of Common Stock issued upon conversion of the Preferred Stock to the following effect: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS." The requirement to include the legend set forth above shall cease and terminate as to any particular shares of Preferred Stock or Common Stock (a) when, in the opinion of Ropes & Gray, or other counsel reasonably acceptable to the Company, such legend is no longer required in order to assure compliance by the Company with the Securities Act or (b) when such shares have been effectively registered under the Securities Act or transferred pursuant to Rule 144. Whenever (x) such requirement shall cease and terminate as to any such shares or (y) such shares shall be transferable under paragraph (k) of Rule 144, the holder thereof shall be entitled to receive from the Company, without expense, new certificates not bearing the legend set forth above. 24 Such Purchaser also agrees to the imprinting, so long as required by law, of a legend on certificates representing its shares of Preferred Stock: "THESE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS, INCLUDING CERTAIN TRANSFER RESTRICTIONS, OF THAT CERTAIN CORPORATE GOVERNANCE AGREEMENT, DATED AS OF APRIL 11, 2000, AMONG THE COMPANY AND CERTAIN OF THE COMPANY'S STOCKHOLDERS. A COPY OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST TO THE COMPANY MADE BY THE HOLDER OF THIS CERTIFICATE." 6.4 GOVERNMENTAL AUTHORIZATIONS. Except for clearance under the Hart-Scott-Rodino Act, no notice to, consent of, or registration, filing or declaration with, any Governmental Authority is required in connection with such Purchaser's execution, delivery and performance of this Agreement and the Transaction Documents and consummation of the contemplated transactions. 6.5 NO BROKERS OR FINDERS. Except as disclosed on Schedule 6.5, no agent, broker, finder, or investment or commercial banker or other Person or firm engaged by or acting on behalf of such Purchaser in connection with the negotiation, execution or performance of this Agreement or the transactions contemplated herein is or will be entitled to any brokerage or finder's or similar fee or other commission as a result of this Agreement or such transaction. 6.6 OWNERSHIP OF COMPANY SECURITIES; VOTING AND OTHER AGREEMENTS. Immediately following the Closing, such Purchaser will not beneficially own any securities of the Company other than the Preferred Stock and the Option Preferred Stock issuable upon the exercise of the Option Agreement. Such Purchaser does not have any agreements, arrangements or understandings with any other Person (other than with other Purchasers who are Affiliates of such Purchaser) with regard to acquiring, holding, voting or disposing of the securities of the Company other than as set forth in this Agreement and in the other Transaction Documents to which such Purchaser is a party. ARTICLE VII COVENANTS 7.1 HSR CLEARANCE. The Company and each of the Purchasers shall cooperate with and provide each other, respectively, with any information that each party reasonably requires and file such notices and responses as may be necessary to enable each party to obtain any required clearance under the Hart-Scott-Rodino Act. Each such Purchaser required to obtain such clearance agrees to use all reasonable best efforts to obtain such clearance as promptly as practicable on or prior to the Closing Date. 25 7.2 RESERVATION OF SHARES. The Company shall at all times reserve and keep available out of the aggregate of its authorized but unissued shares, free of preemptive rights, (i) such number of its duly authorized shares of Preferred Stock as shall be sufficient to enable the Company to pay preferential dividends pursuant to the terms of the Certificate of Designation with respect to all shares of Preferred Stock issued thereunder, (ii) such number of duly authorized shares of Option Preferred Stock as shall be sufficient to enable the Company to issue the full number of shares of Option Preferred Stock issuable upon exercise of the Option, (iii) such number of its duly authorized shares of Option Preferred Stock as shall be sufficient to enable the Company to pay preferential dividends pursuant to the terms of the Option Stock Designation with respect to all shares of Option Preferred Stock issued thereunder and (iv) such number of its duly authorized shares of Common Stock as shall be sufficient to enable the Company to issue Common Stock upon conversion of all such Preferred Stock and Option Preferred Stock. 7.3 PUC CONSENTS. The Company shall use all of its commercially reasonable efforts to obtain all of the authorizations, consents, approvals, licenses and/or exemptions listed on Schedule 5.4 on or prior to the Closing Date. 7.4 DELIVERY OF FINANCIAL AND BUSINESS INFORMATION. The Company shall deliver the following to (i) each Purchaser and (ii) each Permitted Transferee (holding at least 5% of the Underlying Common Stock), so long as at least 20% of the Underlying Common Stock continues to be beneficially owned by the Purchasers and Permitted Transferees: (a) promptly upon becoming available, one copy of (i) each financial statement, report, notice or proxy statement sent by the Company or any Subsidiary to public securities holders generally, and (ii) each regular or periodic report, each registration statement that has become effective (without exhibits unless expressly requested), and each final prospectus and all related amendments filed by the Company or any Subsidiary with the Commission; (b) promptly, and in any event within 10 days after the Company becomes aware of the existence of any default under a material Contractual Obligation, a written notice specifying the nature and period of duration of the default and the action that the Company is taking or proposes to take with respect to the default; (c) concurrently with the delivery of such information to the lenders under the Senior Loan Agreement, copies of annual and quarterly financial statements of the Company prepared in accordance with GAAP; and (d) promptly upon becoming available for each month, the Company's (i) condensed consolidated financial statements, including income statement, balance sheet and statement of cash flow, (ii) revenue analysis, (iii) summary of customer activity, including customers, ISP trunk, voice trunk and voice lines, (iv) functional organizational chart and staffing analysis, (v) summary of network cost package, (vi) selling, general and administrative expense analysis, (vii) capital spending summary, and (viii) summary income statements through EBITDA by major markets. 26 7.5 ACCESS TO PROPERTIES. The Company shall permit representatives designated by (i) the Purchasers and (ii) Permitted Transferees holding at least 5% of the Underlying Common Stock (both prior to Closing and for as long as the Purchasers and their Permitted Transferees own at least 20% of the Underlying Common Stock), upon reasonable notice, during normal business hours and at such other times as such Purchasers or Permitted Transferees reasonably may request, and without unreasonable interference with the Company's operations, to visit and inspect, at their expense, any of the properties, offices, personnel, accountants and advisors of the Company and its Subsidiaries with respect to any of the businesses and assets of the Company and its Subsidiaries, and the transactions contemplated by the Transaction Documents, and to examine the corporate and financial records of the Company and its Subsidiaries. 7.6 PRE-CLOSING COVENANTS. At all times after execution of this Agreement and prior to the Closing (unless and until this Agreement is terminated in accordance with its terms), the Company shall not, without the prior written consent of the Purchasers (except as otherwise expressly permitted or required by this Agreement or any of the Transaction Documents), directly or indirectly take or commit to take any action that (i) would constitute a violation of the restrictions in Section 3.2 of the Corporate Governance Agreement if the action in question were to be taken after the Closing or that (ii) would cause an adjustment to the Conversion Price under Sections 4.3, 4.4 or 4.5 of the Certificate of Designation if the Certificate of Designation had been duly filed and in effect as of the date of this Agreement. 7.7 EXCLUSIVITY. (a) Except for the possible issuance and sale of up to 25,000 shares of the Company's Series C Convertible Preferred Stock to some of the lenders under the Senior Loan Agreement, the Company shall not, and shall cause its Affiliates, employees, investment bankers, attorneys, accountants and other agents not to, initiate, solicit or encourage any inquiries relating to, or the making of any Other Proposal or engage in negotiations or discussions with, or furnish any information to, any third party relating to any Other Proposal. As used in this Section 7.8, "Other Proposal" means any proposal made by any Person, other than the Purchasers, as a group, to acquire from the Company or any of its Affiliates, any convertible preferred stock, any other capital stock or any securities having equity or profit participation features ("Equity Securities"), or any debt securities in lieu of, or substitution for, any Equity Securities; provided, that the term "Other Proposal" shall not include (i) any proposed acquisition, by sale, merger or otherwise, of all or substantially all of the Company's outstanding capital stock or assets or (ii) any proposed stock or asset acquisitions, by sale, merger or otherwise, by the Company or one of its Affiliates which involves the issuance to the sellers by the Company of its capital stock as consideration. The Company shall advise the Purchasers in writing of (i) the receipt, directly or indirectly, of any inquiries relating to an Other Proposal promptly following such receipt and (ii) the status of any discussions or negotiations with respect thereto. Following the receipt, directly or indirectly of any Other Proposal (or any inquiry referred to in clause (i) above), the Company shall furnish to the Purchasers either a copy of such Other Proposal (or such inquiry) or a written summary of such Other Proposal (or such inquiry). In addition, the Company shall not, and shall cause its Affiliates, employees, investment bankers, attorneys, accountants and other agents not to, actually consummate, or enter into any Contractual Obligation or otherwise commit to consummate, any transaction that includes or would include as any part thereof the acquisition by any Person, other than the Purchasers, directly or indirectly, from the Company or any of its Affiliates, any Equity Securities, or any debt securities in lieu of or substitution for any Equity Securities. 27 (b) The restrictions on and obligations of the Company under Section 7.8(a) shall terminate on the earlier to occur of (i) the Closing Date or (ii) the termination of this Agreement pursuant to Section 8.3(a). 7.8 TAX MATTERS. The Purchasers intend that no pay-in-kind dividends on the Preferred Stock or Option Preferred Stock will, when paid or accrued, be includible in the Purchasers' gross income for federal, state or local tax purposes. Accordingly, unless the Company concludes in good faith, with the assistance and advice of its accountants and counsel, that there is no reasonable basis to make or file any Tax Return that is consistent with such intention, the Company shall not make or file any Tax Return that is inconsistent with such intention. 7.9 CONFIDENTIALITY. Each Purchaser will hold, and will use its reasonable efforts to cause its Permitted Transferees, and each Purchaser's and each Permitted Transferee's officers, partners, directors, employees, accountants, counsel, consultants, advisors and agents (the "Representatives") to hold, in confidence, at all times unless compelled to disclose by judicial or administrative process or by other Requirements of Law, all confidential documents and information concerning the Company and it Affiliates that are furnished to such Purchaser and its Permitted Transferees, except to the extent that such information can be shown to have been (i) previously known on a nonconfidential basis by such Purchaser, Permitted Transferee or such Representatives or (ii) in the public domain through no fault of such Purchaser, such Permitted Transferee or such Representative. If any Purchaser or Permitted Transferee, or any of their respective Representatives is requested to disclose any confidential information by judicial or administrative process or by other Requirements of Law, such Person shall promptly notify the Company of such request so that the Company may seek an appropriate protective order. Each Purchaser agrees that it will not, and will use its reasonable best efforts to cause its Permitted Transferees and the Representatives not to, use any confidential documents or information for any purpose other than monitoring and evaluating its investment in the Company and in connection with the transactions contemplated by this Agreement. If this Agreement is terminated, each Purchaser will, and will use its reasonable best efforts to cause its Representatives to, destroy or deliver to the Company all documents and other materials, and all copies thereof, obtained by such Purchaser, or on its behalf, from the Company in connection with this Agreement and an investment in the Company. 28 7.10 SCHEDULE 13D AND 13G. Each Purchaser agrees to provide the Company with a copy of any Schedule 13D or 13G that it intends to file at any time with the Commission in connection with their purchase of Preferred Stock in advance of such filing. 7.11 ELECTION OF DIRECTORS. The Company will cause two representatives of the Purchasers to be elected to the Company's Board of Directors on the day immediately following the Closing Date. 7.12 SERIES C DESIGNATION. Without the prior written consent of the Required Holders, the Company agrees that (a) it will not sell more than an aggregate of 25,000 shares of Series C Preferred Stock and no such sale shall occur on or after April 17, 2000, (b) such stock will not be sold for a purchase price of less than $1,000 per share, (c) such stock will not be sold to any Person other than the current lenders under the Senior Loan Agreement or their Affiliates, no one of which will be permitted to purchase more than 10,000 shares of such stock, (d) the Series C Preferred Stock Purchase Agreement will not be amended, supplemented or otherwise modified in any material respect prior to the closing thereunder, except to include therein the number of shares of Series C Preferred Stock to be purchased thereunder and (e) the Series C Designation will not be amended, supplemented or otherwise modified prior to the filing of such designation with the Secretary of State of Delaware, except to include therein the number of shares of Series C Preferred Stock to be created thereunder. 7.13 ADDITIONAL COVENANT. The parties hereto agree to Exhibit M which is incorporated herein by this reference. ARTICLE VIII INDEMNIFICATION; TERMINATION 8.1 INDEMNIFICATION. Effective upon the Closing, the Company agrees to indemnify and hold harmless the Purchasers and their Affiliates and their officers, directors, agents, employees, subsidiaries, partners and controlling Persons (each, a "Company Indemnified Party") to the fullest extent permitted by law, from and against any and all losses, demands, actions, costs, claims, damages, expenses (including reasonable fees, disbursements and other charges of counsel) or other liabilities (collectively, "Company Liabilities") incurred or suffered by such Company Indemnified Party resulting from or arising out of (i) any misrepresentation or breach of any representation or warranty of the Company in this Agreement, any other Transaction Document or any certificate or instrument delivered pursuant thereto, (ii) any breach of any covenant or obligation of the Company in this Agreement or any other Transaction Document, or (iii) any investigation or proceeding against the Company or any Company Indemnified Party and arising out of or in connection with this Agreement or any of the Transaction Documents, whether or not the transactions contemplated by this Agreement are consummated, which investigation or proceeding requires the participation of, or is commenced or filed against, any Company Indemnified Party because of this Agreement, any other Transaction Document or such other documents or transactions contemplated hereby or thereby; provided that (x) the Company shall not be liable under Section 8.1(iii) to a Company Indemnified Party for any liabilities resulting primarily from any actions that involved the gross negligence or willful misconduct of such Company Indemnified Party or the breach by any Company Indemnified Party of any representation, warranty, covenant or other agreement of such Indemnified Party contained herein or in any other Transaction Documents. 29 8.2 NOTIFICATION. The Company Indemnified Party, under Section 8.1(iii) will, promptly after the receipt of notice of the commencement of any action, investigation, claim or other proceeding against such Company Indemnified Party in respect of which indemnity may be sought from the Company under Section 8.1(iii), notify the Company in writing of the commencement thereof. The omission of any Company Indemnified Party so to notify the Company of any such action shall not relieve the Company from any liability which it may have to such Company Indemnified Party under Section 8.1(iii) unless, and only to the extent that, such omission results in the Company's forfeiture of substantive rights or defenses or the Company is otherwise irrevocably prejudiced in defending such proceeding. In case any such action, claim or other proceeding shall be brought against any Company Indemnified Party and it shall notify the Company of the commencement thereof, the Company shall be entitled to assume the defense thereof at its own expense, with counsel satisfactory to the Company Indemnified Party; provided, that any Company Indemnified Party may, at its own expense, retain separate counsel to participate in such defense. Notwithstanding the foregoing, in any action, claim or proceeding in which both the Company, on the one hand, and a Company Indemnified Party, on the other hand, is, or is reasonably likely to become, a party, such Company Indemnified Party shall have the right to employ separate counsel at the Company's expense and to control its own defense of such action, claim or proceeding if, (a) the Company has failed to assume the defense and employ counsel as provided herein, (b) the Company has agreed in writing to pay such fees and expenses of separate counsel or (c) in the reasonable opinion of counsel to such Company Indemnified Party, a conflict or likely conflict exists between the Company, on the one hand, and such Company Indemnified Party, on the other hand, that would make such separate representation advisable, provided, however, that the Company shall not in any event be required to pay the fees and expenses of more than one separate counsel (and if deemed necessary by such separate counsel, appropriate local counsel who shall report to such separate counsel). The Company agrees that it will not, without the prior written consent of a Company Indemnified Party, settle, compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding relating to the matters contemplated hereby (if such Company Indemnified Party is a party thereto or has been actually threatened to be made a party thereto) unless such settlement, compromise or consent includes an unconditional release of such Company Indemnified Party from all liability arising or that may arise out of such claim, action or proceeding. The Company shall not be liable for any settlement of any claim, action or proceeding effected against a Company Indemnified Party without the prior written consent of the Company. 8.3 TERMINATION. (a) This Agreement may be terminated at any time prior to the Closing Date: (i) by mutual written agreement of the Company and each Purchaser; (ii) by the Company or the Purchasers if the Closing shall not have been consummated on or before June 30, 2000, (iii) by the Company or the Purchasers if a Governmental Authority shall have issued a nonappealable final order, decree or ruling or taken any action having the effect of permanently restraining or enjoining the transactions contemplated by this Agreement or (iv) by the Company if any one of the Purchasers (who is obligated to purchase at least 100,000 shares of the Preferred Stock) defaults in its obligations under this Agreement to purchase such Preferred Stock (a "Closing Failure"). 30 (b) If this Agreement is terminated as permitted by Section 8.3(a), such termination shall be without liability of any party hereto (or their respective Affiliates) to any other party hereto; provided, however, that nothing shall relieve any party from liability if such termination shall result from the (i) willful failure by any party to fulfill a condition to the performance of the obligations of the other parties, (ii) willful failure by any party to perform a covenant of this Agreement, (iii) willful breach by any party hereto of any representation or warranty contained in this Agreement or (iv) a Closing Failure. The provisions of Sections 7.10, 8.3, 9.2, 9.8 and 9.11 shall survive any termination hereof pursuant to Section 8.3. ARTICLE IX MISCELLANEOUS 9.1 CLAIMS AND SUITS UNDER SECTION 8.1. No claim may be made or suit instituted under Section 8.1 with respect to any breach of a representation or warranty (except if it relates to a breach of Sections 5.1, 5.2, 5.3, 5.8, and 5.22 or if it relates to fraud) after the date that is eighteen (18) months after the Closing Date or, as to the representations and warranties in Section 5.14 after the expiration of applicable statutes of limitation with respect to the subject matter of each such representation and warranty, unless the Company Indemnified Party has given the indemnifying party written notice of such claim or suit (describing with reasonable specificity the amount of and basis for such claim or suit) on or prior to such date. 9.2 NOTICES. All notices, requests, claims, demands and other communications ("Notices") provided for or permitted hereunder shall be made in writing and shall be by registered or certified first class mail, return receipt requested, telecopier, recognized overnight courier service or personal delivery: (a) if to the Company: US LEC Corp. Transamerica Square 401 N. Tryon Street, Suite 1000 Charlotte, North Carolina 28202 Attention: General Counsel Telecopier: (704) 319-3098 31 with a required copy to: Moore & Van Allen, PLLC 100 North Tryon Street, Floor 47 Charlotte, North Carolina 28202-4003 Attention: Barney Stewart III Telecopier: (704) 331-1151 (b) if to the Purchasers: Bain Capital, Inc. Two Copley Place Boston, Massachusetts 02116 Attention: Ian K. Loring Telecopier: (617) 572-3274 and to: Thomas H. Lee Partners, L.P. 75 State Street, 26th Floor Boston, Massachusetts 02109 Attention: Anthony J. DiNovi Telecopier (617) 227-3514 with a required copy to: Ropes & Gray One International Plaza Boston, Massachusetts 02110-2624 Attention: Philip J. Smith Telecopier: (617) 951-7050 All Notices shall be deemed to have been duly given: when delivered by hand, if personally delivered; when delivered by courier, if delivered by commercial overnight courier service; five Business Days after being deposited in the mail, postage prepaid, if mailed; and when receipt is acknowledged by the individual to whom the telecopy is sent, if telecopied. 32 9.3 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of the parties hereto. Subject to applicable securities laws and except as otherwise set forth in the Transaction Documents (including, without limitation, the Corporate Governance Agreement), the Purchasers may assign any of their rights under this Agreement, to any Person who is a Permitted Transferee. The Company may not assign any of its rights under this Agreement without the prior written consent of the Purchasers. Except as provided in Article 9, no Person other than the parties hereto and their successors and permitted assigns is intended to be a beneficiary of any of the Transaction Documents. 9.4 DETERMINATIONS, REQUESTS OR CONSENTS. Any amendment, supplement or modification of or to any provision of this Agreement, any waiver of any provision of this Agreement, and any consent to any departure of the Company from the terms of any provision of this Agreement, shall be effective (a) only if it is made or given in writing and signed by the Company and the Required Holders (as defined below) in accordance with this Section 9.4, and (b) only in the specific instance and for the specific purpose for which made or given. All determinations, requests, consents, waivers or amendments to be made by the Purchasers in their opinion or judgment or with their approval or otherwise pursuant to this Agreement shall be made (i) at any time following the Closing, by the holders of at least 51% of the then outstanding Purchaser Preferred Stock or (ii) at any time prior to the Closing, by Purchasers who have committed to purchase hereunder at least 51% of the Purchaser Preferred Stock (in either case, the "Required Holders"). 9.5 COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 9.6 HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 9.7 GOVERNING LAW. This agreement shall be governed by and construed in accordance with the laws of the State of Delaware without regard to the principles of conflicts of law of such state. 9.8 SEVERABILITY. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof. 33 9.9 RULES OF CONSTRUCTION. Unless the context otherwise requires, "or" is not exclusive, and references to sections or subsections refer to sections or subsections of this Agreement. All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require. 9.10 ENTIRE AGREEMENT. This Agreement, together with the exhibits and schedules hereto and the other Transaction Documents, is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein or therein. This Agreement, together with the exhibits hereto, and the other Transaction Documents supersede all prior contemporaneous agreements and understandings between the parties with respect to such subject matter. 9.11 CERTAIN EXPENSES. (a) The Purchasers and the Company shall each pay their own fees and expenses in connection with the negotiation and preparation of this Agreement and consummation of the transactions contemplated herein with the exception that the Company shall pay or reimburse the Purchasers for their fees and expenses (including HSR filing fees, the fees and expenses of their counsel and accountants, and the expenses incurred by representatives of the Purchasers) for the negotiation and preparation of the Transaction Documents and the consummation of the purchase transactions contemplated thereby, including the exercise of the Option Agreement. Thereafter, subject to the provisions of Section 9.11(c), the Company shall reimburse the Purchasers for the reasonable fees and expenses which they incur from time to time in consulting with their counsel and accountants with respect to the Transaction Documents and any amendments, supplements, consents or waivers with respect to such documents. Reasonable documentation shall be provided to the Company by the Purchasers for all fees and expenses which the Company has agreed to reimburse pursuant to this Section 9.11(a). (b) The Company shall not be required to pay or reimburse the Purchasers for any of their fees and expenses in the event that the Closing does not occur; provided, however, the Company shall be required to pay or reimburse the Purchasers for such fees and expenses if the Closing does not occur due to the failure of the Company to satisfy the closing conditions under Section 3 of this Agreement. (c) If any action, suit or proceeding is commenced by any Purchaser after the Closing arising out of or related to an alleged breach by the Company of a covenant in any Transaction Document, such Purchaser or Purchasers shall be entitled to reimbursement by the Company of the attorneys fees and expenses, accountants fees and expenses and other costs incurred in investigating, prosecuting or defending such action, suit or proceeding, payable within 10 days after presentation to the Company of reasonable documentation for such fees, expenses and costs; provided, however, that the Company shall not be liable for such fees and expenses in the event that it is finally determined that no such breach occurred. 34 9.12 PUBLICITY. Except as may be required by applicable law, none of the parties hereto shall issue a publicity release or announcement or otherwise make any public disclosure concerning this Agreement or the transactions contemplated hereby, without prior approval by the other parties hereto (which approval will not be unreasonably withheld). If any announcement is required by law to be made by any party hereto, prior to making such announcement such party will deliver a draft of such announcement to the other parties and shall give the other parties an opportunity to comment thereon. 9.13 FURTHER ASSURANCES. Each of the parties shall execute such documents and perform such further acts (including, without limitation, obtaining any consents, exemptions, authorizations, or other actions by, or giving any notices to, or making any filings with, any Governmental Authority or any other Person) as may be reasonably required or desirable to carry out or to perform the provisions of this Agreement and/or the Certificate of Incorporation. [Signature Pages To Follow] 35 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written. US LEC CORP. By: /s/ Michael K. Robinson ----------------------------------- Name: Michael K. Robinson Title: Executive Vice President and Chief Financial Officer BAIN CAPITAL CLEC INVESTORS, L.L.C. By: Bain Capital Fund VI, L.P., its Administrative Member By: Bain Capital Partners VI, L.P., its General Partner By: Bain Capital Investors VI, Inc., its general partner By: /s/ Michael A. Krupka ----------------------------------- Name: Title: Managing Director THOMAS H. LEE EQUITY FUND IV, L.P. By: THL Equity Advisors IV, LLC, its general partner By: /s/ Anthony J. DiNovi ----------------------------------- Name: Anthony J. DiNovi Title: Managing Director 36 THOMAS H. LEE FOREIGN FUND IV-B, L.P. By: THL Equity Advisors IV, LLC, its general partner By: /s/ Anthony J. DiNovi ----------------------------------- Name: Anthony J. DiNovi Title: Managing Director THOMAS H. LEE FOREIGN FUND IV, L.P. By: THL Equity Advisors IV, LLC, its general partner By: /s/ Scott M. Sperling ----------------------------------- Name: Scott M. Sperling Title: Managing Director PUTNAM INVESTMENT HOLDINGS, LLC By: /s/ William H. Woolverton ----------------------------------- Name: William H. Woolverton Title: Managing Director 1997 THOMAS H. LEE NOMINEE TRUST By: /s/ Gerald Wheeler ----------------------------------- Trustee 37 THOMAS H. LEE CHARITABLE INVESTMENT LIMITED PARTNERSHIP By: /s/ Thomas H. Lee ----------------------------------- Name: Thomas H. Lee Title: President /s/ David V. Harkins ----------------------------------- DAVID V. HARKINS THE HARKINS 1995 GIFT TRUST By: /s/ Sheryll J. Harkins ----------------------------------- Trustee /s/ Scott A. Schoen ----------------------------------- SCOTT A. SCHOEN /s/ C. Hunter Boll ----------------------------------- C. HUNTER BOLL /s/ Scott M. Sperling ----------------------------------- SCOTT M. SPERLING /s/ Anthony J. DiNovi ----------------------------------- ANTHONY J. DINOVI /s/ Thomas M. Hagerty ----------------------------------- THOMAS M. HAGERTY /s/ Warren C. Smith, Jr. ----------------------------------- WARREN C. SMITH, JR. 38 /s/ Seth W. Lawry ----------------------------------- SETH W. LAWRY /s/ Kent R. Weldon ----------------------------------- KENT R. WELDON /s/ Terrence M. Mullen ----------------------------------- TERRENCE M. MULLEN /s/ Todd M. Abbrecht ----------------------------------- TODD M. ABBRECHT /s/ Charles A. Brizius ----------------------------------- CHARLES A. BRIZIUS /s/ Scott Jaeckel ----------------------------------- SCOTT L. JAECKEL /s/ Soren Oberg ----------------------------------- SOREN L. OBERG /s/ Thomas R. Shepherd ----------------------------------- THOMAS R. SHEPHERD /s/ Wendy L. Masler ----------------------------------- WENDY L. MASLER /s/ Andrew D. Flaster ----------------------------------- ANDREW D. FLASTER 39 ROBERT SCHIFF LEE 1988 IRREVOCABLE TRUST By: /s/ Charles W. Robins -------------------------------- Trustee: Charles W. Robins ------------------------------------ STEPHEN ZACHARY LEE /s/ Charles W. Robins -------------------------------- CHARLES W. ROBINS AS CUSTODIAN FOR JESSE LEE /s/ Charles W. Robins -------------------------------- CHARLES W. ROBINS AS CUSTODIAN FOR NATHAN LEE /s/ Charles W. Robins -------------------------------- CHARLES W. ROBINS /s/ James Westra -------------------------------- JAMES WESTRA /s/ Adam A. Abramson -------------------------------- ADAM A. ABRAMSON -------------------------------- JOANNE M. RAMOS /s/ P. Holden Spaht -------------------------------- P. HOLDEN SPAHT /s/ Nancy M. Graham -------------------------------- NANCY M. GRAHAM 40 /s/ Gregory A. Ciongoli -------------------------------- GREGORY A. CIONGOLI /s/ Wm. Matthews Kelly -------------------------------- WM. MATTHEW KELLY /s/ K. F. Sullivan -------------------------------- KEVIN F. SULLIVAN /s/ Diane M. Barriere -------------------------------- DIANE M. BARRIERE /s/ Kim H. Oakley -------------------------------- KIM H. OAKLEY 41 EX-4.2 3 OPTION AGREEMENT "THE SECURITIES REPRESENTED BY THIS OPTION AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS." OPTION AGREEMENT THIS OPTION AGREEMENT (the "Agreement") is made as of April 11, 2000, by and between US LEC CORP., a Delaware corporation (the "Company"), and the Persons whose names are set forth on Schedule 1 attached hereto (individually, a "Purchaser" and collectively, the "Purchasers") W I T N E S S E T H: WHEREAS, the Company and the Purchasers are parties to a Preferred Stock Purchase Agreement dated as of April 11, 2000 (the "Purchase Agreement"); WHEREAS, pursuant to the terms and conditions of the Purchase Agreement, the Company has agreed to sell, and the Purchasers have agreed to purchase, an aggregate of 200,000 shares of the Company's Series A Convertible Preferred Stock which are convertible into shares of the Company's Class A Common Stock, par value $.01 per share (the "Common Stock"); and WHEREAS, the parties hereto now wish to provide for an option whereby the Purchasers shall have the right to purchase an aggregate of up to 100,000 shares of the Preferred Stock (as defined in Article I below), subject to the terms and conditions contained herein; NOW, THEREFORE, in consideration of the foregoing and the representations, covenants and agreements contained herein, and certain other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS Unless otherwise defined herein, capitalized terms used herein shall have the meaning given such terms below. Capitalized terms used herein and not defined shall have the meanings set forth in the Purchase Agreement. "ACQUISITION" means (i) the Company has consolidated with, or merged with or into, any other Person and, in connection with any such consolidation or merger, the holders of the Company's Common Stock and Class B Common Stock outstanding immediately prior to such transaction do not own, in the aggregate, at least 50% of the outstanding stock of the surviving entity in such transaction, or (ii) any Person has made a tender offer or exchange offer to acquire all of the Company's outstanding Common Stock and Class B Common Stock (each such offer, a "Tender Offer"), and, upon the consummation of the Tender Offer, the holders of the Company's Common Stock and Class B Common Stock outstanding immediately prior thereto do not own, in the aggregate at least 50% of the outstanding stock of the Person that made the Tender Offer. "ACQUISITION PROPOSAL" means a written proposal submitted to the Chairman, Chief Executive Officer, President or Chief Financial Officer of the Company (each, an "Executive Officer") that (i) proposes a transaction that would, if consummated, result in an Acquisition, (ii) values the Company at not less than 120% of the Company's market capitalization at the time it is submitted and (iii) the Executive Officers, after consultation among themselves, have determined the proposal is a bona fide one that the Company should or is required to discuss with the Person that submitted it or is then discussing the proposal with the Person that submitted it. "CLOSING" has the meaning assigned thereto in Section 2.2. "CLOSING DATE" has the meaning assigned thereto in Section 2.2. "COMPANY INDEMNIFIED PARTY" has the meaning assigned thereto in Section 8.1. "EXERCISE NOTICE" has the meaning assigned thereto in Section 2.1(a). "EXERCISE PERIOD" has the meaning assigned thereto in Section 2.1(c). "INVESTOR AGENTS" has the meaning assigned to such term in the Corporate Governance Agreement. "MARKET PRICE" of any security means the average (weighted by daily trading volume) of the closing prices of such security's sales on all securities exchanges on which such security may be listed at the time, or, if there has been no sales on any such exchange on any day, or, if on any day such security is not so listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, or, if on any day such security is not quoted in the NASDAQ System, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated or any similar successor organization, in each such case averaged over a period of 30 days consisting of the day as of which the "Market Price" is being determined and the 29 consecutive Business Days prior to such day. If at any time such security is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the "Market Price" shall be the fair value thereof determined jointly by the Company and the Investor Agents. If such parties are unable to reach agreement within a reasonable period of time, such fair value shall be determined by an independent appraiser experienced in valuing securities jointly selected by the Company and the Investor Agents. The determination of such appraiser shall be final and binding upon the parties, and the Company shall pay the fees and expenses of such appraiser. 2 "OPTION" has the meaning set forth in Section 2.1(a). "OPTION PRICE" has the meaning assigned thereto in Section 2.1(a). "PREFERRED STOCK" means the Series B Convertible Preferred Stock of the Company, or any other capital stock of the Company into which such stock is reclassified or reconstituted. "PREMIUM ACQUISITION" means the consummation of an Acquisition that was the subject of an Acquisition Proposal pursuant to which the holders of the Company's outstanding Common Stock and Class B Common Stock receive stock, cash or other consideration having a value on a per share basis at least equal to 110% of the Market Price of the Common Stock on the day the Company first received such Acquisition Proposal. "PURCHASER(S)" has the meaning assigned thereto in the Preamble and their successors and permitted assigns. "PURCHASER PREFERRED STOCK" means the Preferred Stock and the Series A Preferred Stock. "PURCHASER REGULATORY EVENT" means any event in which any Purchaser becomes subject to regulation as a "carrier," a "telephone company," a "common carrier," a "public utility," or otherwise under any applicable law or governmental regulation, federal, state, or local, as a result of the purchase of the Series A Preferred Stock pursuant to the Purchase Agreement, the purchase of the Preferred Stock pursuant to this Agreement and the execution and delivery of the Transaction Documents (as defined in the Purchase Agreement) by the parties thereto at the closing under the Purchase Agreement. "REQUISITE HOLDERS" has the meaning assigned thereto in Section 9.4. "SERIES A DESIGNATION" means the Certificate of Designation of the Company relating to the Series A Preferred Stock filed with the Secretary of State of Delaware as of the date hereof. "SERIES A PREFERRED STOCK" means the Series A Convertible Preferred Stock of the Company or any other capital stock of the Company into which such stock is reclassified or reconstituted. 3 "SERIES B DESIGNATION" means the Certificate of Designation relating to the Preferred Stock attached as Exhibit A hereto. "SERIES C DESIGNATION" means the Certificate of Designation of the Company relating to the Series C Preferred Stock to be filed with the Secretary of State of the State of Delaware in such form as is permitted by the Purchase Agreement, as amended, supplemented or otherwise modified. "SERIES C PREFERRED STOCK" means the Series C Convertible Preferred Stock of the Company or any other capital stock of the Company into which such stock is reclassified or reconstituted. ARTICLE II GRANT AND EXERCISE OF OPTION 2.1. GRANT AND EXERCISE OF OPTION; EXERCISE PERIOD. (a) The Company hereby grants to each Purchaser named on Schedule 1 hereto an option (the "Option") to purchase, subject to the terms hereof, that number of shares of Preferred Stock set forth opposite such Purchaser's name on Schedule 1, at a price of $1,000 per share (the "Option Price"). In the event some or all of the Purchasers desire to exercise the Option, such Purchasers shall send to the Company a written notice (the "Exercise Notice" ) specifying (i) the total number of shares of Preferred Stock each such Purchaser will purchase pursuant to such exercise and (ii) a date not earlier than five Business Days nor later than 20 Business Days (subject to extension to satisfy closing conditions hereunder) from the date of the Exercise Notice for the closing of such purchase pursuant to Section 2.2. Subject to the provisions of Section 2.1(c), the Option may be exercised, in whole or in part, at any one time; provided that the Option may not be exercised in part unless the combined Option exercises pursuant to the Exercise Notice provide for the purchase of at least 25,000 shares of Preferred Stock. (b) Notwithstanding the provisions of Section 2.1(a), the Company shall not be obligated to issue and sell any Preferred Stock pursuant to an Exercise Notice if, within five Business Days of receipt of such notice, the Company delivers a certificate to the Investor Agents executed by an Executive Officer stating that, as of the date of receipt of the Exercise Notice, the Company had received an Acquisition Proposal and describing the material terms of such Acquisition Proposal (the "Proposal Notice") and provides the Investor Agents with sufficient documentation to enable them to determine whether the proposed transaction meets the criteria set forth in the definition of Acquisition Proposal. If the Company timely delivers a Proposal Notice to the Investor Agents, the Exercise Notice shall be deemed withdrawn without further action by the Company or the Purchasers that submitted the Exercise Notice. In the event (i) the Company terminates discussions with respect to the Acquisition Proposal that was the subject of the Proposal Notice or (ii) the proposed transaction no longer meets the criteria set forth in the definition of Premium Acquisition, the Company shall promptly notify the Investor Agents of that fact in writing (the "Termination Notice"), in which event the Option may again be exercised, subject to the terms hereof, including the provisions of this Section 2.1(b) and Section 2.1(c); provided, however, that in the event of an exercise of the Option following receipt by the Investor Agents of a Termination Notice pursuant to clause (ii), the Company shall not close such proposed transaction prior to the closing of the Option pursuant to Section 2.2. In the event the Company consummates an Acquisition described in an Acquisition Proposal that was the subject of a Proposal Notice, it shall promptly notify the Investor Agents of that fact in writing (the "Consummation Notice") and shall provide the Purchasers with such documentation as reasonably requested by the Purchasers to enable them to determine whether such Acquisition constitutes a Premium Acquisition. 4 (c) The Option granted hereunder shall be exercisable in accordance with the terms hereof by delivery of an Exercise Notice at any time during the period beginning on the date of this Agreement and ending on April 11, 2001 (the "Exercise Period"); provided that if the exercise of the Option is deemed to be withdrawn by the delivery of a Proposal Notice by the Company pursuant to Section 2.1(b) and either (i) the Investor Agents have received a Termination Notice with respect to such Proposal Notice or (ii) the Acquisition described in the Acquisition Proposal that was the subject of such Proposal Notice is consummated and such Acquisition is not a Premium Acquisition, the Option may be exercised by delivery of an Exercise Notice at any time until the later of the expiration of the Exercise Period or 30 days after the receipt by the Investors Agents of the Termination Notice or Consummation Notice with respect to such Acquisition, as applicable; and, provided, further, that if the exercise of the Option is deemed to be withdrawn by the delivery of a Proposal Notice pursuant to Section 2.1(b) and the Acquisition described in the Acquisition Proposal that was the subject of such Proposal Notice is consummated and such Acquisition is a Premium Acquisition, the Option, and the right of any Purchaser to exercise the Option, shall automatically terminate. 2.2 CLOSING. The issuance and purchase of the Preferred Stock upon the exercise of the Option shall take place at the Closing (the "Closing") to be held at the offices of Moore & Van Allen, PLLC, Charlotte, North Carolina, at 10:00 a.m., on the date specified in the Exercise Notice, or at such other time and place as the Company and the Purchasers exercising the Option may agree in writing (the "Closing Date"). At the Closing, the Company shall deliver to the Purchasers certificates representing the number of shares of the Preferred Stock specified in the Exercise Notice against delivery to the Company by the Purchasers of the Option Price therefor by wire transfer of immediately available funds. ARTICLE III CONDITIONS TO THE OBLIGATION OF THE PURCHASERS TO CLOSE The obligation of each Purchaser to purchase the number of shares of Preferred Stock set forth in the Exercise Notice at the Closing, to pay the Option Price therefor at the Closing and to perform any other obligations hereunder shall be subject to the reasonable satisfaction as determined by each Purchaser of the following conditions on or before the Closing Date: 5 3.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company contained in Section 5 hereof shall be true and correct (a) when made and (b) on and as of the Closing Date as if made on and as of such date except for such changes to Schedules 5.9 and 5.10 as are permitted by the terms of the Transaction Documents and set forth on revised Schedules 5.9 and 5.10 provided to the Purchasers at the Closing. 3.2 COMPLIANCE WITH THIS AGREEMENT. The Company shall have performed and complied in all material respects with all of the agreements, obligations, covenants and conditions set forth in this Agreement that are required to be performed or complied with by the Company on or before the Closing Date. 3.3 OFFICER'S CERTIFICATE. Each Purchaser shall have received a certificate dated as of the Closing Date from the chief executive officer and chief financial officer of the Company, substantially in the form of Exhibit B, to the effect that (a) all representations and warranties of the Company contained in this Agreement are true and correct, (b) the Company is not in violation in any material respect of any of the covenants contained in this Agreement or any other Transaction Document, and (c) all conditions precedent to the Closing to be performed by the Company have been duly performed in all material respects. 3.4 SECRETARY'S CERTIFICATE, GOOD STANDING CERTIFICATES. Each Purchaser shall have received a certificate from the Company dated the Closing Date and signed by the Secretary or an Assistant Secretary of the Company, substantially in the form of Exhibit C, certifying (a) that the attached copies of the Certificate of Incorporation, Bylaws or other applicable governance documents and resolutions of the Board of Directors of the Company (i) authorizing the issuance of the Preferred Stock pursuant to this Agreement and the issuance of any Common Stock upon conversion thereof and (ii) approving this Agreement and the transactions contemplated hereby to which it is a party, are all true, complete and correct and remain unamended and in full force and effect, and (b) as to the incumbency and specimen signature of each officer of the Company executing any document delivered in connection with this Agreement on behalf of the Company. 3.5 PAYMENT OF FEES. There shall have been paid by the Company (a) to Bain Capital Partners VI, L.P., a funding fee equal to 1% of the amount funded by Bain Capital CLEC Investors, L.L.C. at the Closing, (b) to Thomas H. Lee Equity Advisors IV, L.P. a funding fee equal to 1% of the amount funded by all Purchasers other than Bain Capital CLEC Investors, L.L.C. at the Closing and (c) to each Purchaser all legal fees and expenses required to be paid or reimbursed to such Purchaser by the Company pursuant to Section 9.11 of the Purchase Agreement. In addition, the Company shall have paid in full all fees due to First Union Securities, Inc. in connection with the transactions contemplated by this Agreement as of the Closing. 3.6 PURCHASE PERMITTED BY APPLICABLE LAWS. The acquisition of and payment for the Preferred Stock to be acquired by each Purchaser at the Closing and the consummation of the transactions contemplated hereby at the Closing (a) shall not be prohibited by any Requirement of Law, and (b) shall not subject any Purchaser to any penalty or, in its reasonable judgment, other adverse condition under or pursuant to any Requirement of Law. 6 3.7 HSR CLEARANCE. Any required clearance under the Hart-Scott-Rodino Act to sell the Preferred Stock upon the terms of this Agreement shall have been obtained. 3.8 SERIES B DESIGNATION. On or prior to the Closing, the Series B Designation for the number of shares of Preferred Stock to be delivered at the Closing, including shares of Preferred Stock issuable as preferential dividends with respect thereto, shall have been duly filed with the Secretary of State of the State of Delaware, all in accordance with the applicable provisions of the DGCL, and the Series B Designation shall constitute a legal and valid amendment of the Certificate of Incorporation and, as of the Closing, the Certificate of Incorporation shall not have been otherwise amended; provided, that if at any time from the date of this Agreement until the Closing Date the Company shall take any action that would have caused an adjustment in the $46.50 conversion price in Section 4.2 of the Series B Designation pursuant to Sections 4.3, 4.4, 4.5 or 4.6 thereof if the Series B Preferred Stock had been outstanding, the conversion price set forth in Section 4.2, at the time the Series B Designation is filed with the Secretary of State of the State of Delaware on the Closing Date, shall be the conversion price as so adjusted. 3.9 PREFERRED STOCK CERTIFICATE. Each Purchaser shall have received from the Company a duly executed preferred stock certificate, substantially in the form of Exhibit D, dated the Closing Date representing the number of shares of Preferred Stock purchased by it at the Closing. 3.10 REQUIRED CONTRACTUAL CONSENTS. The Company shall have received any consents required pursuant to the terms of any material Contractual Obligation in connection with the delivery of the Preferred Stock at the Closing. 3.11 REQUIRED GOVERNMENTAL CONSENTS. The Company shall have received all Regulatory Authorizations and other Governmental Authority approvals or consents required in connection with the delivery of the Preferred Stock at the Closing. 3.12 LISTING OF SHARES. The Company shall have filed with The Nasdaq Stock Market notice of the maximum number of shares of Common Stock potentially issuable pursuant to the terms of the Series B Designation as of the Closing Date other than any such shares as may be issuable upon an adjustment in the conversion price of the Preferred Stock after the Closing Date. 3.13 OPINIONS OF COUNSEL. The Purchasers shall have received (a) from Moore & Van Allen, PLLC, special legal counsel for the Company, a favorable opinion as of the Closing Date, to the effect that: (i) the Company is duly organized as a corporation under the DGCL; (ii) the Company is validly existing and in good standing in the jurisdiction of its incorporation and has the requisite corporate power to own or lease and operate its property, and to carry on its business as currently conducted; (iii) the issuance of the Preferred Stock, including the issuance of Preferred Stock as preferential dividends pursuant to the Series B Designation, has been duly authorized by all corporate action required under the Company's Organizational Documents; (iv) the Series B Designation has been duly authorized by all corporate action required under the Company's Organizational Documents and filed with the Secretary of State of Delaware; (v) upon issuance at the Closing, the Preferred Stock will be validly issued, fully paid and nonassessable, and will not have been issued in violation of or be subject to any preemptive rights, and the issuance of the shares of Common Stock issuable upon conversion of the Preferred Stock has been duly authorized and such shares have been duly reserved for issuance, and upon issuance will be validly issued, fully paid and nonassessable, and will not have been issued in violation of or be subject to any preemptive rights; and (b) from Swidler Berlin Shereff Friedman, LLP, special regulatory counsel to the Company, a favorable opinion as of the Closing Date, to the effect that (i) no consents or approvals of the FCC or any PUC are required for the purchase of the Preferred Stock pursuant to this Agreement and (ii) the purchase of the Preferred Stock pursuant to this Agreement will not, in and of itself, subject the Purchasers to regulation as common carriers or telephone companies under the Communications Act (as defined in such opinion) in those states in which the Company and its Subsidiaries are certified to operate as of the Closing. 7 3.14 REGULATORY EVENTS. No Regulatory Event or Purchaser Regulatory Event shall have occurred and be continuing or shall occur as a result of the purchase of the Preferred Stock at the Closing. ARTICLE IV CONDITIONS TO THE OBLIGATION OF THE COMPANY TO CLOSE The obligations of the Company to issue and sell the Preferred Stock pursuant to the Exercise Notice at the Closing and to perform its other obligations hereunder at the Closing shall be subject to the satisfaction as determined by the Company of the following conditions on or before the Closing Date: 4.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations and warranties of each of the Purchasers contained in Section 6 hereof shall be true and correct on and as of the Closing Date as if made on and as of such date. 4.2 COMPLIANCE WITH THIS AGREEMENT. Each of the Purchasers shall have performed and complied in all material respects with all of its agreements and conditions set forth or contemplated herein that are required to be performed or complied with by each of the Purchasers on or before the Closing Date. 4.3 ISSUANCE PERMITTED BY REQUIREMENTS OF LAWS. The issuance of the Preferred Stock to be issued by the Company pursuant to the Exercise Notice at the Closing and the consummation of the transactions contemplated hereby at the Closing (a) shall not be prohibited by any Requirement of Law and (b) shall not subject the Company to any penalty or, in its reasonable judgment, other onerous condition under or pursuant to any Requirement of Law. 4.4 HSR CLEARANCE. Any required clearance under the Hart-Scott-Rodino Act to acquire the Preferred Stock pursuant to the Exercise Notice upon the terms of this Agreement shall have been obtained. 8 4.5 OPINION OF COUNSEL. If the rights of any Purchaser to purchase Preferred Stock hereunder have been Transferred to a Permitted Transferee, such Permitted Transferee or Permitted Transferees shall have delivered to the Company an opinion dated the Closing Date from the Permitted Transferees' counsel, Ropes & Gray, in form and substance satisfactory to the Company and its counsel, to the effect that each such Permitted Transferee's performance of this Agreement was duly authorized by the requisite corporate, fiduciary, limited liability company or partnership action required under its Organizational Documents and applicable state laws. ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to the Purchasers as follows: 5.1 ORGANIZATION AND QUALIFICATION. Each of the Company and its Subsidiaries is duly organized, validly existing and in good standing under the laws of its state of organization. Each of the Company and its Subsidiaries is duly qualified to do business and in good standing in each jurisdiction in which the failure to receive or retain such qualification would reasonably be expected to have a Material Adverse Effect. As to any such entity that is a limited liability company, each manager is duly organized, validly existing, in good standing under the laws of its state of organization, and duly qualified to do business and in good standing in each jurisdiction in which the failure to receive or retain such qualification would reasonably be expected to have a Material Adverse Effect. 5.2 AUTHORITY AND AUTHORIZATION. Each of the Company and its Subsidiaries has all requisite corporate or limited liability company right, power, authority and legal right to carry on its business, to own or lease its properties and to execute and deliver and perform its obligations under this Agreement, and, in the case of the Company, to execute and deliver and to perform its obligations under this Agreement and consummate the transactions contemplated hereby. The Company's execution, delivery and performance of this Agreement has been duly and validly authorized by all necessary corporate proceedings on the part of the Company. Upon issuance, the Preferred Stock, and any shares of such stock issuable as preferential dividends pursuant to the terms thereof, will be validly issued, fully paid and nonassessable, and will not have been issued in violation of or subject to any preemptive rights, and the shares of Common Stock issuable upon conversion of the Preferred Stock, and any shares of stock issuable as preferential dividends pursuant to the terms thereof, have been duly authorized and, as of the date here of, will be reserved for issuance, and upon issuance will be validly issued, fully paid and nonassessable, and will not have been issued in violation of or be subject to any preemptive rights. 9 5.3 EXECUTION AND BINDING EFFECT. This Agreement has been duly and validly executed and delivered by the Company, and constitutes the legal, valid and binding obligations of the Company enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, receivership, moratorium or other laws affecting creditors' rights generally. 5.4 GOVERNMENTAL AUTHORIZATIONS. Except as set forth on Schedule 5.4, no authorization, consent, approval, license, exemption or other action by, and no registration, qualification, designation, declaration or filing with, any Governmental Authority is or will be necessary in connection with the execution and delivery of this Agreement, the consummation by the Company of the transactions herein contemplated, performance of or compliance by the Company with the terms and conditions hereof or the legality, validity and enforceability hereof. 5.5 NO BROKERAGE FEES. Except for a fee payable to First Union Securities, Inc., no brokerage or other fee, commission or compensation is to be paid by the Company or any Subsidiary to any Person in connection with the transactions hereunder except as contemplated herein. 5.6 INVESTMENT COMPANY; PUBLIC UTILITY HOLDING COMPANY. Neither the Company nor any of its Subsidiaries is an "investment company" or a "company controlled by an investment company" or an "affiliated person" or "promoter" or "principal underwriter" for, an "investment company," within the meaning of the Investment Company Act of 1940, as amended, or a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," within the meaning of the Public Utility Holding Company Act of 1935, as amended. 5.7 SECURITIES ACT. Based upon the representations and warranties of each Purchaser in Section 6 of this Agreement, (i) the Preferred Stock to be issued pursuant to an Exercise Notice, any Preferred Stock to be issued as preferential dividends pursuant to the terms thereof and the Common Stock issuable upon conversion of such Preferred Stock and (ii) the issuance by the Company thereof, are not required to be registered under the Securities Act or under the securities or blue sky laws of any state or jurisdiction. 5.8 ABSENCE OF CONFLICTS. The consummation by the Company of the transactions contemplated by this Agreement and the performance of or compliance with the terms and conditions hereof by the Company will not, directly or indirectly (and with or without notice or the passage of time or both), (a) violate any Requirements of Law applicable to the Company or its Subsidiaries; (b) conflict with or result in a breach of or a default under the Organizational Documents of the Company or its Subsidiaries or any Contractual Obligation to which the Company or its Subsidiaries is a party or by which such entity or its properties are bound; (c) result in the creation or imposition of any Lien upon any property (now owned or hereafter required); or (d) violate or conflict with, or give any Governmental Authority the right to challenge the transactions contemplated by this Agreement or revoke, withdraw, suspend, cancel, terminate or modify, any Regulatory Authorization issued to or held by the Company or any Subsidiary (other than as set forth on Schedule 5.8). 10 5.9 TRANSACTIONS WITH AFFILIATES. No Affiliate and no officer or director of either the Company or any its Subsidiaries or any individual related by blood, marriage, adoption or otherwise to any such Affiliate, officer or director, or any Person in which any such Affiliate, officer, director or individual related thereto owns any material beneficial interest, is a party to any agreement, contract, commitment or transaction with the Company or any of its Subsidiaries or has any material interest in any material property used by the Company or any of its Subsidiaries, except as set forth on Schedule 5.9. 5.10 CAPITALIZATION. The authorized capital stock of the Company and its Subsidiaries and the issued and outstanding shares thereof are as described on Schedule 5.10. As of the Closing Date, all outstanding shares of capital stock of the Company and its Subsidiaries will be duly authorized and validly issued, fully paid, nonassessable and free and clear of any Lien created by the Company or any Subsidiary thereof (other than Liens under the Senior Loan Documents). Except as described in Schedule 5.10, no other class of capital stock or other ownership interests of the Company or its Subsidiaries are authorized or outstanding. Neither the Company nor any Subsidiary is subject to any obligation (contingent or otherwise) to repurchase, redeem or otherwise acquire its capital stock or any warrants, options or other rights to acquire its capital stock, except pursuant to the Series A Designation and, when filed with the Secretary of State of Delaware, the Series B Designation and Series C Designation. The Company does not have any outstanding securities convertible into capital stock of the Company (other than the Class B Common Stock and the Series A Preferred Stock); and except for shares of Common Stock reserved for issuance upon the exercise of outstanding warrants or in connection with the Company Stock Option Plan, the Company does not have any shares of capital stock reserved for issuance (other than shares of Common Stock reserved for issuance upon conversion of the Class B Common Stock, the Preferred Stock, Series A Preferred Stock and Series C Preferred Stock). Except as set forth on Schedule 5.10 and other than the Company's outstanding warrants and stock options and this Agreement, the Company does not have any commitment to authorize, issue or sell any of its capital stock or securities convertible into or exchangeable for any of its capital stock. Neither the Company nor any of its Subsidiaries is a party to any "phantom stock", employee stock option plan, other equity-based incentive plan or similar agreement, other than the Company Stock Option Plan. Schedule 5.10 sets forth the number of shares of capital stock reserved for issuance upon the exercise of options granted or available to be granted under the Company Stock Option Plan. Schedule 5.10 also lists all of the Company's outstanding warrants to purchase capital stock. Except as set forth on Schedule 5.10, there are no preemptive or similar rights to purchase or otherwise acquire equity securities of, or interests in, the Company or any of its Subsidiaries pursuant to any Requirements of Law or Contractual Obligations applicable to the Company or any of its Subsidiaries. Other than as set forth in the Transaction Documents, there are no existing rights with respect to registration or sale or resale under the Securities Act or the securities or blue sky laws of any state or jurisdiction of any securities of the Company or any of its Subsidiaries. Subject to the provisions of Section 3.8, the shares of Preferred Stock to be issued to each Purchaser on the Closing Date, and any additional shares of Preferred Stock to be issued as preferential dividends pursuant to the terms thereof, will upon issuance to such Purchaser have the designation, preferences, qualifications, limitations, restrictions and such special and relevant rights as are set forth in the Series B Designation. 11 5.11 COMMISSION FILINGS. Since April 23, 1998 (the date of the Company's initial public offering), the Company has filed with the Commission, on a timely basis, all registration statements, reports on Form 10-K, 10-Q and 8-K, proxy statements and information statements, and other documents that it was required to file under the Securities Act or the Exchange Act. As of the respective dates of such filings, none of the Company's filings with the Commission contained (and the Company's most recent Form 10-K does not contain) an untrue statement of a material fact or omitted (and the Company's most recent Form 10-K does not omit) to state any material fact necessary to make any statement of a material fact that it contained, in light of the circumstances in which made, not misleading; and when filed with the Commission, each of such filings with the Commission complied in all material respects with the applicable requirements of the Securities Act or Exchange Act, as applicable. The Company is eligible to file a registration statement on Form S-3 and has taken all actions which would be required to permit sales of its securities pursuant to Rule 144 under the Securities Act. 5.12 LITIGATION. There is no pending or, to the Company's knowledge, threatened action, suit or proceeding that challenges the transactions contemplated by this Agreement or that would have the effect of preventing, delaying, making illegal or otherwise interfering with the transactions contemplated by this Agreement. 5.13 NO DEFAULT. To the Company's knowledge, no event has occurred or circumstance exists that (with or without notice or the passage of time or both) would constitute or result in a violation or breach by the Company or any Subsidiary of any provisions of the Transaction Documents. ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS Each Purchaser as to itself and not as to any other Purchaser hereby severally represents and warrants to the Company, as appropriate, as follows: 6.1 AUTHORIZATION; NO CONTRAVENTION. Such Purchaser (unless an individual) is duly organized, validly existing and in good standing as a corporation, limited liability company or general or limited partnership under the laws of the state of its incorporation or formation. The execution, delivery and performance by such Purchaser of this Agreement (a) is within such Purchaser's power and authority and has been duly authorized by all necessary partnership, company or corporate action, (b) does not contravene the terms of such Purchaser's organizational documents or any amendment thereof and (c) will not violate, conflict with or result in any breach or contravention of any material Contractual Obligation of such Purchaser, or any material Requirement of Law directly relating to such Purchaser. 6.2 BINDING EFFECT. This Agreement has been duly executed and delivered by such Purchaser, and this Agreement constitutes the legal, valid and binding obligation of such Purchaser enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws affecting the enforcement of creditors' rights generally or by general equitable principles relating to enforceability. 12 6.3 ACCREDITED INVESTOR; PURCHASE FOR OWN ACCOUNT. Such Purchaser is an "accredited investor" within the meaning of Regulation D under the Securities Act. The Preferred Stock to be issued pursuant to the terms of this Agreement, any Preferred Stock to be issued as preferential dividends pursuant to the terms thereof and the shares of Common Stock to be issued upon conversion of such Preferred Stock are being or will be acquired for its own account and with no intention of distributing or reselling such securities or any part thereof in any transaction that would be in violation of the Securities Act or the securities laws of any state, without prejudice, however, to the rights of such Purchaser at all times to sell or otherwise dispose of all or any part of such Preferred Stock or any shares of Common Stock under an effective registration statement under the Securities Act, or under an exemption from such registration available under the Securities Act. If such Purchaser should in the future decide to dispose of such Preferred Stock or any shares of Common Stock issued upon conversion of the Preferred Stock, such Purchaser understands and agrees that it may do so only in compliance with the Securities Act and applicable state securities laws, as then in effect. Such Purchaser agrees to the imprinting, so long as required by law, of a legend on certificates representing such Preferred Stock or any shares of Common Stock issued upon conversion of the Preferred Stock to the following effect: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS." The requirement to include the legend set forth above shall cease and terminate as to any particular shares of Preferred Stock or Common Stock (a) when, in the opinion of Ropes & Gray, or other counsel reasonably acceptable to the Company, such legend is no longer required in order to assure compliance by the Company with the Securities Act or (b) when such shares have been effectively registered under the Securities Act or transferred pursuant to Rule 144. Whenever (x) such requirement shall cease and terminate as to any such shares or (y) such shares shall be transferable under paragraph (k) of Rule 144, the holder thereof shall be entitled to receive from the Company, without expense, new certificates not bearing the legend set forth above. Such Purchaser also agrees to the imprinting, so long as required by law, of a legend on certificates representing its shares of Preferred Stock: "THESE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS, INCLUDING CERTAIN TRANSFER RESTRICTIONS, OF EACH OF THAT CERTAIN CORPORATE GOVERNANCE AGREEMENT, DATED AS OF APRIL 11, 2000, AMONG THE COMPANY AND CERTAIN OF THE COMPANY'S STOCKHOLDERS. A COPY OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST TO THE COMPANY MADE BY THE HOLDER OF THIS CERTIFICATE." 13 6.4 GOVERNMENTAL AUTHORIZATIONS. Except for clearance under the Hart-Scott-Rodino Act, no notice to, consent of, or registration, filing or declaration with, any Governmental Authority is required in connection with such Purchaser's execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby. 6.5 NO BROKERS OR FINDERS. Except as disclosed on Schedule 6.5, no agent, broker, finder, or investment or commercial banker or other Person or firm engaged by or acting on behalf of such Purchaser in connection with the negotiation, execution or performance of this Agreement or the transactions contemplated herein is or will be entitled to any brokerage or finder's or similar fee or other commission as a result of this Agreement or such transaction. 6.6 VOTING AND OTHER AGREEMENTS. Such Purchaser does not have any agreements, arrangements or understandings with any other Person (other than with other Purchasers who are Affiliates of such Purchaser) with regard to acquiring, holding, voting or disposing of the securities of the Company other than as set forth in the Transaction Documents to which such Purchaser is a party. ARTICLE VII COVENANTS 7.1 HSR CLEARANCE. The Company and each of the Purchasers shall cooperate with and provide each other, respectively, with any information that each party reasonably requires and file such notices and responses as may be necessary to enable each party to obtain any required clearance under the Hart-Scott-Rodino Act in connection with the exercise of the Option. Each such Purchaser required to obtain such clearance agrees to use all reasonable best efforts to obtain such clearance as promptly as practicable on or prior to the Closing Date. 7.2 RESERVATION OF SHARES. The Company shall at all times reserve and keep available out of the aggregate of its authorized but unissued shares, free of preemptive rights, (i) such number of its duly authorized shares of Preferred Stock as shall be sufficient to enable the Company to pay preferential dividends pursuant to the terms of the Series B Designation with respect to all shares of Preferred Stock issued thereunder, and (ii) such number of its duly authorized shares of Common Stock as shall be sufficient to enable the Company to issue Common Stock upon conversion of all such Preferred Stock. 7.3 NOTICE OF ADJUSTMENTS. The Company shall give each of the Purchasers written notice of any adjustments in the conversion price of the Series B Designation contemplated by Section 3.8 within 10 Business Days of the adjustment. 14 7.4 GOVERNMENTAL CONSENTS. The Company shall use all commercially reasonable efforts to obtain all of the authorizations, consents, approvals, licenses and/or exemptions necessary in connection with the Closing hereunder, including those listed on Schedule 5.4, on or prior to the Closing Date. 7.5 CORPORATE CHANGE. Prior to the Closing Date, the Company shall: (a) prior to the consummation of any Corporate Change (as defined in the Series B Designation) in which the Company is the successor or purchasing corporation, make appropriate provisions (in form and substance reasonably satisfactory to the Purchasers) such that each Purchaser shall have the right to receive upon exercise of the Option, the Preferred Stock into which such Option is exercisable with such terms and rights as would otherwise have been applicable if the provisions of Section 4 and 5 of the Series B Designation had been in full force and effect with respect to such shares since the date of this Agreement; and (b) prior to the consummation of any Corporate Change in which the successor or purchasing corporation is an entity other than the Company, make appropriate provisions (in form and substance reasonably satisfactory to the Purchasers) to ensure that each Purchaser shall have the right to receive upon exercise of the Option, the number of shares of convertible preferred stock into which such Option is exercisable to be issued by such successor or purchasing corporation with substantially the same terms and rights as the Preferred Stock as otherwise would have been applicable if the provisions of Section 4 and 5 of the Series B Designation had been in full force and effect with respect to such shares since the date of this Agreement. 7.6 BEST EFFORTS. The Company will, and will cause each of its Affiliates to, use its best efforts to cause the conditions set forth in Article III to be satisfied on or prior to the Closing. 7.7 ADJUSTMENTS IN CERTIFICATE OF DESIGNATION. The parties hereto agree that upon the exercise of the Option, the terms of the Series B Designation attached as Exhibit A hereto (including without limitation, the rate in clause (i) of the definition of "Applicable Rate" and the number of "Dividend Payment Dates" on which the Corporation is required to pay preferential dividends through the issuance of additional shares of Preferred Stock) shall be adjusted such that as of the twelfth dividend payment date under the Series A Designation, the holders of each share of the Preferred Stock will have received as preferential dividends thereon 0.19562 additional shares of Preferred Stock. Such adjustments must be on terms reasonably satisfactory to each of the parties hereto. The Series B Designation (as so adjusted) shall thereafter be referred to herein as the "Series B Designation" and shall be filed with the Secretary of State of Delaware in accordance with Section 3.8 hereof. 15 ARTICLE VIII INDEMNIFICATION; TERMINATION 8.1 INDEMNIFICATION. Effective upon the Closing, the Company agrees to indemnify and hold harmless the Purchasers and their Affiliates and their officers, directors, agents, employees, subsidiaries, partners and controlling Persons (each, a "Company Indemnified Party") to the fullest extent permitted by law, from and against any and all losses, demands, actions, costs, claims, damages, expenses (including reasonable fees, disbursements and other charges of counsel) or other liabilities (collectively, "Company Liabilities") incurred or suffered by such Company Indemnified Party resulting from or arising out of (i) any misrepresentation or breach of any representation or warranty of the Company in this Agreement, or any certificate or instrument delivered pursuant hereto, (ii) any breach of any covenant or obligation of the Company in this Agreement, or (iii) any investigation or proceeding against the Company or any Company Indemnified Party that arises out of or in connection with this Agreement, whether or not the transactions contemplated by this Agreement are consummated, which investigation or proceeding requires the participation of, or is commenced or filed against, any Company Indemnified Party because of this Agreement or the transactions contemplated hereby; provided that (x) the Company shall not be liable under Section 8.1(iii) to a Company Indemnified Party for any liabilities resulting primarily from any actions that involved the gross negligence or willful misconduct or any Company Indemnified Party or the breach by any Company Indemnified Party of any representation, warranty, covenant or other agreement of such Indemnified Party contained herein. 8.2 NOTIFICATION. The Company Indemnified Party, under Section 8.1(iii) will, promptly after the receipt of notice of the commencement of any action, investigation, claim or other proceeding against such Company Indemnified Party in respect of which indemnity may be sought from the Company under Section 8.1(iii), notify the Company in writing of the commencement thereof. The omission of any Company Indemnified Party so to notify the Company of any such action shall not relieve the Company from any liability which it may have to such Company Indemnified Party under Section 8.1(iii) unless, and only to the extent that, such omission results in the Company's forfeiture of substantive rights or defenses or the Company is otherwise irrevocably prejudiced in defending such proceeding. In case any such action, claim or other proceeding shall be brought against any Company Indemnified Party and it shall notify the Company of the commencement thereof, the Company shall be entitled to assume the defense thereof at its own expense, with counsel satisfactory to the Company Indemnified Party; provided, that any Company Indemnified Party may, at its own expense, retain separate counsel to participate in such defense. Notwithstanding the foregoing, in any action, claim or proceeding in which both the Company, on the one hand, and a Company Indemnified Party, on the other hand, is, or is reasonably likely to become, a party, such Company Indemnified Party shall have the right to employ separate counsel at the Company's expense and to control its own defense of such action, claim or proceeding if, (a) the Company has failed to assume the defense and employ counsel as provided herein, (b) the Company has agreed in writing to pay such fees and expenses of separate counsel or (c) in the reasonable opinion of counsel to such Company Indemnified Party, a conflict or likely conflict exists between the Company, on the one hand, and such Company Indemnified Party, on the other hand, that would make such separate representation advisable, provided, however, that the Company shall not in any event be required to pay the fees and expenses of more than one separate counsel (and if deemed necessary by such separate counsel, appropriate local counsel who shall report to such separate counsel). The Company agrees that it will not, without the prior written consent of a Company Indemnified Party, settle, compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding relating to the matters contemplated hereby (if such Company Indemnified Party is a party thereto or has been actually threatened to be made a party thereto) unless such settlement, compromise or consent includes an unconditional release of such Company Indemnified Party from all liability arising or that may arise out of such claim, action or proceeding. The Company shall not be liable for any settlement of any claim, action or proceeding effected against a Company Indemnified Party without the prior written consent of the Company. 16 ARTICLE IX MISCELLANEOUS 9.1 CLAIMS AND SUITS UNDER SECTION 8.1. No claim may be made or suit instituted under Section 8.1 with respect to any breach of a representation or warranty (except if it relates to Sections 5.1, 5.2, 5.3, 5.10 or if it relates to fraud) after the date that is eighteen (18) months after the Closing Date, unless the Company Indemnified Party has given the indemnifying party written notice of such claim or suit (describing with reasonable specificity the amount of and basis for such claim or suit) on or prior to such date. 9.2 NOTICES. All notices, claims, demands and other communications ("Notices") provided for or permitted hereunder shall be made in writing and shall be by registered or certified first class mail, return receipt requested, telecopier, recognized overnight courier service or personal delivery: (a) if to the Company: US LEC Corp. Transamerica Square 401 N. Tryon Street, Suite 1000 Charlotte, North Carolina 28202 Attention: General Counsel Telecopier: (704) 319-3098 with a required copy to: Moore & Van Allen, PLLC 100 North Tryon Street, Floor 47 Charlotte, North Carolina 28202-4003 Attention: Barney Stewart III Telecopier: (704) 331-1151 17 (b) if to the Purchasers or the Investor Agents: Bain Capital, Inc. Two Copley Place Boston, Massachusetts 02116 Attention: Ian K. Loring Telecopier: (617) 572-3274 and to: Thomas H. Lee Partners, L.P. 75 State Street, 26th Floor Boston, Massachusetts 02109 Attention: Anthony J. DiNovi Telecopier (617) 227-3514 with a required copy to: Ropes & Gray One International Plaza Boston, Massachusetts 02110-2624 Attention: Philip J. Smith Telecopier: (617) 951-7050 All Notices shall be deemed to have been duly given: when delivered by hand, if personally delivered; when delivered by courier, if delivered by commercial overnight courier service; five Business Days after being deposited in the mail, postage prepaid, if mailed; and when receipt is acknowledged by the individual to whom the telecopy is sent, if telecopied. 9.3 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of the parties hereto. Subject to applicable securities laws and except as otherwise set forth in the Transaction Documents (including, without limitation, the Corporate Governance Agreement), the Purchasers may assign any of their rights under this Agreement, to any Person who is a Permitted Transferee. The Company may not assign any of its rights under this Agreement without the prior written consent of the Purchasers. Except as provided in Article 9, no Person other than the parties hereto and their successors and permitted assigns is intended to be a beneficiary of this Agreement. 9.4 DETERMINATIONS, REQUESTS OR CONSENTS. Any amendment, supplement or modification of or to any provision of this Agreement, any waiver of any provision of this Agreement, and any consent to any departure of the Company from the terms of any provision of this Agreement, shall be effective (a) only if it is made or given in writing and signed by the Company and the Required Holders (as defined below) in accordance with this Section 9.4, and (b) only in the specific instance and for the specific purpose for which made or given. All determinations, requests, consents, waivers or amendments to be made by the Purchasers in their opinion or judgment or with their approval or otherwise pursuant to this Agreement shall be made at any time prior to the Closing by the holders of at least 51% of the Series A Convertible Preferred Stock then outstanding, and following the Closing by the holders of at least 51% of the Purchaser Preferred Stock then outstanding (the "Required Holders"). 18 9.5 COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 9.6 HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 9.7 GOVERNING LAW. This agreement shall be governed by and construed in accordance with the laws of the State of Delaware without regard to the principles of conflicts of law of such state. 9.8 SEVERABILITY. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof. 9.9 RULES OF CONSTRUCTION. Unless the context otherwise requires, "or" is not exclusive, and references to sections or subsections refer to sections or subsections of this Agreement. All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require. 9.10 ENTIRE AGREEMENT. This Agreement, together with the exhibits hereto and the other Transaction Documents, is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein or therein. This Agreement, together with the exhibits hereto, and the other Transaction Documents supersede all prior contemporaneous agreements and understandings between the parties with respect to such subject matter. 9.11 FURTHER ASSURANCES. Each of the parties shall execute such documents and perform such further acts (including, without limitation, obtaining any consents, exemptions, authorizations, or other actions by, or giving any notices to, or making any filings with, any Governmental Authority or any other Person) as may be reasonably required or desirable to carry out or to perform the provisions of this Agreement. [Signature Pages To Follow] 19 20 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written. US LEC CORP. By: /s/ Michael K. Robinson Name: Michael K. Robinson ----------------------------- Title: Executive Vice President and Chief Financial Officer BAIN CAPITAL CLEC INVESTORS, L.L.C. By: Bain Capital Fund VI, L.P., its Administrative Member By: Bain Capital Partners VI, L.P., its General Partner By: Bain Capital Investors VI, Inc., its general partner By: /s/ Michael A. Krupka ----------------------------- Name: Michael A. Krupka Title: Managing Director THOMAS H. LEE EQUITY FUND IV, L.P. By: THL Equity Advisors IV, LLC, ----------------------------- its general partner By: /s/ Anthony J. DiNovi ----------------------------- Name: Anthony J. DiNovi Title: Managing Director THOMAS H. LEE FOREIGN FUND IV-B, L.P. By: THL Equity Advisors IV, LLC, its general partner By: /s/ Anthony J. DiNovi ----------------------------- Name: Anthony J. DiNovi Title: Managing Director 21 THOMAS H. LEE FOREIGN FUND IV, L.P. By: THL Equity Advisors IV, LLC, its general partner By: /s/ Scott M. Sperling ----------------------------- Name: Scott M. Sperling Title: Managing Director PUTNAM INVESTMENTS, INC. By: /s/ William H. Woolverton ----------------------------- Name: William H. Woolverton Title: Managing Director 1997 THOMAS H. LEE NOMINEE TRUST By: /s/ Gerald Wheeler ----------------------------- Trustee THOMAS H. LEE CHARITABLE INVESTMENT L.P. By: /s/ Thomas H. Lee ----------------------------- Name: Thomas H. Lee Title: President 22 /s/ David V. Harkins ----------------------------- DAVID V. HARKINS THE HARKINS 1995 GIFT TRUST By: /s/ Sheryll J. Harkins ----------------------------- Trustee /s/ Scott A. Schoen ----------------------------- SCOTT A. SCHOEN /s/ C. Hunter Boll ----------------------------- C. HUNTER BOLL /s/ Scott M. Sperling ----------------------------- SCOTT M. SPERLING /s/ Anthony J. DiNovi ----------------------------- ANTHONY J. DINOVI /s/ Thomas M. Hagerty ----------------------------- THOMAS M. HAGERTY /s/ Warren C. Smith, Jr. ----------------------------- WARREN C. SMITH, JR. /s/ Seth W. Lawry ----------------------------- SETH W. LAWRY /s/ Kent R. Weldon ----------------------------- KENT R. WELDON 23 /s/ Terrence M. Mullen ----------------------------- TERRENCE M. MULLEN /s/ Todd M. Abbrecht ----------------------------- TODD M. ABBRECHT /s/ Charles A. Brizius ----------------------------- CHARLES A. BRIZIUS /s/ Scott Jaeckel ----------------------------- SCOTT JAECKEL /s/ Soren Oberg ----------------------------- SOREN OBERG /s/ Thomas R. Shepherd ----------------------------- THOMAS R. SHEPHERD /s/ Wendy L. Masler ----------------------------- WENDY L. MASLER /s/ Andrew D. Flaster ----------------------------- ANDREW D. FLASTER ROBERT SCHIFF LEE 1988 IRREVOCABLE TRUST By: /s/ Charles W. Robins ----------------------------- Trustee /s/ Stephen Zachary Lee ----------------------------- STEPHEN ZACHARY LEE 24 /s/ Charles W. Robins ----------------------------- CHARLES W. ROBINS AS CUSTODIAN FOR JESSE LEE /s/ Charles W. Robins ----------------------------- CHARLES W. ROBINS AS CUSTODIAN FOR NATHAN LEE /s/ Charles W. Robins ----------------------------- CHARLES W. ROBINS /s/ James Westra ----------------------------- JAMES WESTRA THL-CCI INVESTORS LIMITED PARTNERSHIP By: THL Investment Management Corp., its general partner By: ----------------------------- Name: Title: /s/ Adam A. Abramson ----------------------------- ADAM A. ABRAMSON /s/ Joanne M. Ramos ----------------------------- JOANNE M. RAMOS /s/ P. Holden Spaht ----------------------------- P. HOLDEN SPAHT /s/ Nancy M. Graham ----------------------------- NANCY M. GRAHAM /s/ Gregory A. Ciongoli ----------------------------- GREGORY A. CIONGOLI 25 /s/ Wm. Matthew Kelly ----------------------------- WM. MATTHEW KELLY /s/ Kevin F. Sullivan ----------------------------- KEVIN F. SULLIVAN /s/ Diane M. Barriere ----------------------------- DIANE M. BARRIERE /s/ Kim H. Oakley ----------------------------- KIM H. OAKLEY 26 EX-4.3 4 CORPORATION GOVERNANCE AGREEMENT CORPORATE GOVERNANCE AGREEMENT This Agreement is entered into as of April 11, 2000 by US LEC Corp., a Delaware corporation (the "Company"), and the Persons whose names are set forth on Schedule 1 attached hereto (collectively, the "Investors"). A. The Company and the Investors have entered into the Preferred Stock Purchase Agreement dated as of the same date as this Agreement (the "Purchase Agreement"), pursuant to the terms and conditions of which (i) the Company is issuing and selling to the Investors, and the Investors are purchasing from the Company an aggregate of 200,000 shares of Preferred Stock and (ii) the Company is issuing an option to the Investors to purchase an aggregate of up to 100,000 shares of Option Preferred Stock pursuant to the terms of the Option Agreement. B. The parties' execution and delivery of this Agreement is a condition of their respective obligations to close under the Purchase Agreement. The parties agree as follows: 1. DEFINITIONS. Capitalized terms which are used in this Agreement and the foregoing recitations without being defined have the same meanings that they are given in the Purchase Agreement. In addition, the following terms have these meanings: "ACQUISITION EVENT" means (i) the Company has consolidated with, or merged with or into, any other Person and, in connection with any such consolidation or merger, the holders of the Company's Common Stock outstanding immediately prior to such transaction do not own, in the aggregate, at least 50% of the outstanding stock of the surviving entity in such transaction, or (ii) any Person has made a tender offer or exchange offer to acquire any of the Company's Common Stock (each such offer, a "Tender Offer"), and, upon consummation of the Tender Offer, the holders of the Company's Common Stock outstanding immediately prior thereto do not own, in the aggregate, at least 50% of the outstanding stock of the Person that made the Tender Offer. "BOARD OF DIRECTORS" or " BOARD" means the Company's board of directors. "BOARD ACTION" means (i) such action by the Company as is necessary to cause the majority of the members of the Board (including any incumbent Investor Directors) to be persons designated by the Permitted Owners of the Underlying Common Stock, including causing existing members of the Board to resign and filling the vacancies created with such designees or increasing the size of the Board and filling the vacancies created with such designees or (ii) calling a special meeting of the Company's stockholders for the purpose of electing such designees to fill such vacancies if they are not filled as provided in clause (i). The action required by the Company hereunder shall be taken as soon as practicable and shall include, if required, adoption by the Board of any necessary amendments to the Bylaws, the preparation and submission to the Company's stockholders of a proxy statement in connection with any special stockholders' meeting and the filing of any required reports with the Commission and The Nasdaq Stock Market. "CERTIFICATE OF DESIGNATION" means the Certificate of Designation of the Company relating to the Preferred Stock filed with the Secretary of State of the State of Delaware, as amended, supplemented or otherwise modified. "COMMON STOCK" means the Company's Class A Common Stock, Class B Common Stock and any other class of common stock created by the Company. "INITIAL OPTION STOCK" means the shares of Option Preferred Stock actually issued by the Company to the Investors pursuant to the Option Agreement. "INITIAL PREFERRED STOCK" means the 200,000 shares of Preferred Stock issued by the Company to the Investors at the Closing pursuant to the Purchase Agreement. "INVESTOR AGENT" means any person designated by the Permitted Owners to serve in such capacity pursuant to this Agreement. " INVESTOR DIRECTOR" means any person nominated or designated by the Permitted Owners to serve as a director of the Company pursuant to this Agreement. "INVESTOR OBSERVER" means any person designated by the Permitted Owners to serve as an observer at meetings of the Board pursuant to this Agreement; provided that no person may be designated to serve as an Investor Observer whose association with the Company would, in the opinion of a majority of the directors, be materially damaging to the Company or who is a Competitor or acting as a representative of a Competitor; it being understood that no Person that is an executive of Bain Capital, Inc. or Thomas H. Lee Partners, L.P. shall be deemed to be a representative of a Competitor solely by virtue of the fact that Affiliates of such companies own securities of a Competitor. "OPTION PREFERRED STOCK" means the Series B Convertible Preferred Stock of the Company, or any other capital stock of the Company into which such stock is reclassified or reconstituted. "OPTION STOCK DESIGNATION" means the Certificate of Designation of the Company relating to the Option Preferred Stock to be filed with the Secretary of State of the State of Delaware in accordance with the terms and conditions of the Option Agreement, as subsequently amended, supplemented or otherwise modified. "PERMITTED OWNER" means (i) an Investor, for as long as the Investor continues to be the beneficial owner of any shares of the Underlying Common Stock, and (ii) each Permitted Transferee, for as long as the Permitted Transferee continues to be the beneficial owner of any shares of Underlying Common Stock. 2 "PERMITTED TRANSFEREE" means (i) any Affiliate of any Investor to whom an Investor or another Affiliate of any Investor Transfers shares of Preferred Stock or Option Preferred Stock, (ii) any other Person to whom an Investor or an Affiliate of any Investor Transfers shares of Preferred Stock or Option Preferred Stock with the prior written consent of the Board of Directors, (iii) any Person to whom a transferee described in clause (ii) Transfers shares of Preferred Stock or Option Preferred Stock with the prior written consent of the Board of Directors and (iv) any THL Holder and any of the funds affiliated with Bain Capital, Inc. and any general or limited partner of such funds; provided that in no event shall any shares of Preferred Stock or Option Preferred Stock be transferred to a Competitor or a Person acting as a representative of a Competitor without the Company's prior written consent. No Transfer otherwise permissible shall be effective unless the Permitted Transferee agrees in writing expressly for the Company's benefit to be bound by the provisions of this Agreement, and in this event, the transferor shall not be liable for the transferee's performance of its obligations under this Agreement. "PREFERRED STOCK" means the Series A Convertible Preferred Stock of the Company, or any other capital stock of the Company into which such stock is reclassified or reconstituted. "SERIES C DESIGNATION" means the Certificate of Designation of the Company relating to the Series C Preferred Stock to be filed with the Secretary of State of the State of Delaware in such form as is permitted by the Purchase Agreement, as amended, supplemented or otherwise modified. "SERIES C PREFERRED STOCK" means the Series C Convertible Preferred Stock of the Company or any other capital stock of the Company into which such stock is reclassified or reconstituted. "THL HOLDER" means (i) any general or limited partner of the THL Entities (a "THL Partner") and any corporation, partnership, or other entity which is an Affiliate of the THL Entities or any THL Partner (collectively, the "THL Affiliates"), (ii) any managing director, general partner, director, limited partner, officer or employee of the THL Entities or a THL Affiliate, or the heirs, executors, administrators, testamentary trustees, lifetime trustees, legatees or beneficiaries of any of the foregoing persons referred to in this clause (iii) (collectively, "THL Associates"), (iv) a charitable institution as defined in Section 501(c) of the Internal Revenue Code of 1986, as amended, which receives a bona fide gift by a THL Associate of shares of Preferred Stock or Option Preferred Stock, (v) a bank, financial institution or other lender which receives a bona fide pledge by a THL Associate of shares of Preferred Stock or Option Preferred Stock and (vi) any trust, the beneficiaries of which, or any corporation, limited liability company or partnership, the stockholders, members or general or limited partners of which include only the THL Entities, THL Affiliates, THL Associates, their spouses or their lineal descendents. "THL Entities" shall mean Thomas H. Lee Partners, L.P. and its affiliated entities. "TOTAL ENTERPRISE VALUE" means, as at any date of determination, the Market Price of the Company's issued and outstanding equity securities (excluding any Preferred Stock issued under the Certificate of Designation, any Option Preferred Stock issued under the Option Stock Designation and any Series C Preferred Stock issued under the Series C Designation), plus the Stated Value (as defined in the Certificate of Designation) of all issued and outstanding Preferred Stock, plus the Stated Value (as defined in the Option Stock Designation) of all issued and outstanding Option Preferred Stock, plus the Stated Value (as defined in the Series C Designation) of all issued and outstanding Series C Preferred Stock, plus the amount recorded on the Company's balance sheet attributable to any other issued and outstanding shares of securities that is not recorded in stockholders' equity in the Company's balance sheet, plus the face amount of any existing debt recorded on the Company's balance sheet, less the sum of the Company's cash and cash equivalents recorded on the Company's balance sheet. References herein to the Company's balance sheet mean the Company's most recent (i) audited year-end balance sheet, (ii) unaudited interim period balance sheet included in a Form 10-K, 10-Q or 8-K filed by the Company with the Commission or (iii) unaudited month-end balance sheet certified by the Company's Chief Financial Officer prior to the date of determination of Total Enterprise Value. 3 "TRANSFER" means to sell, assign, transfer (voluntarily or involuntarily), exchange (by merger or otherwise) or otherwise dispose of or to grant a lien, encumbrance, pledge or other form of security interest, except that any Investor may create a security interest in shares of Preferred Stock and Option Preferred Stock to secure loans made to it so long as any Transfer pursuant to such security interest is subject to the terms of this Agreement. "UNDERLYING COMMON STOCK" means all shares of Common Stock issued or issuable upon conversion of the Initial Preferred Stock and the Initial Option Preferred Stock (which number shall be determined, with respect to any given date, based upon the Conversion Price of the Initial Preferred Stock or Initial Option Preferred Stock, as applicable, in effect as of such date without giving effect to the one year limitation on conversion) without regard to any preferential dividends that accrue or are issued or paid with respect to the Initial Preferred Stock or the Initial Option Stock. 2. CORPORATE GOVERNANCE. 2.1 APPOINTMENT OF INVESTOR DIRECTORS AND DESIGNATION OF INVESTOR OBSERVERS. Effective as of the Closing, the Company shall increase the size of its Board of Directors from five directors to seven directors, and, on the day immediately following the Closing, the Board shall appoint two Investor Directors designated by the Investors to fill the vacancies created and the Investors shall designate two persons to serve as Investor Observers. An Investor Director shall be appointed to each committee of the Board of Directors. 2.2 MAINTENANCE OF DIRECTORSHIPS. (a) For as long as the Permitted Owners beneficially own at least 30% of the Underlying Common Stock, Permitted Owners shall continue to have the right to nominate two persons who shall be included among the Company's nominees for election to the Board and to designate two persons to serve as Investor Observers. The Company shall nominate each person so designated and shall use reasonable efforts to have the two nominees of the Permitted Owners elected to the Board of Directors. The Company's obligations under this Section 2.2(a) shall be deemed satisfied if two persons are elected to the Board by holders of Preferred Stock and Option Preferred Stock pursuant to the Certificate of Designation and the Option Stock Designation and two persons designated by such Permitted Owners to serve as Investor Observers are serving in that capacity. 4 (b) If at any time the Permitted Owners beneficially own less than 30% but at least 20% of the Underlying Common Stock, one of the two persons then serving as an Investor Director (as specified by the Permitted Owners) shall, if requested by the Board, immediately resign as a director and one of the two persons then serving as an Investor Observer (as specified by the Permitted Owners) shall immediately cease serving as an observer. For as long as the Permitted Owners beneficially own at least 20% of the Underlying Common Stock, the Permitted Owners shall continue to have the right to designate one person who shall be included among the Company's nominees for election to the Board of Directors and to designate one person to serve as an Investor Observer. The Company shall nominate the person so designated and shall use reasonable efforts to have the nominee of the Permitted Owners elected to the Board of Directors. The Company's obligations under this Section 2.2(b) shall be deemed satisfied if one person is elected to the Board by holders of Preferred Stock and Option Preferred Stock pursuant to the Certificate of Designation and the Option Stock Designation and one person designated by such Permitted Owners to serve as an Investor Observer is serving in that capacity. (c) If at any time Permitted Owners beneficially own less than 20% of the Underlying Common Stock, Permitted Owners shall cease to be entitled to nominate any person for election to the Board or any person as an Investor Observer, and the Investor Director currently serving as a director (or both Investor Directors currently serving as directors, as the case may be) shall, if requested by the Board, immediately resign, and the Investor Observer (or both Investor Observers, as the case may be) shall immediately cease serving as observers. 2.3 REMOVAL AND REPLACEMENT. (a) If at any time Permitted Owners notify the Board of Directors of their wish to remove any incumbent Investor Director as a director, that incumbent Investor Director shall immediately resign from the Board or the Board shall vote to remove the Investor Director (if his or her removal is permitted under the Bylaws and the DGCL). Removal of an incumbent Investor Director by the Board or the resignation of an incumbent Investor Director otherwise than at the request of the Permitted Owners shall require their prior written consent unless the removal is based upon the Investor Director's willful misconduct; provided that an incumbent Investor Director shall resign from the Board if a majority of the remaining directors determine in good faith that he or she has engaged in conduct that could be materially damaging to the Company or is a Competitor or acting as a representative of a Competitor; it being understood that no Person that is an executive of Bain Capital, Inc. or Thomas H. Lee Partners, L.P. shall be deemed to be a representative of a Competitor solely by virtue of the fact that Affiliates of such companies own securities of a Competitor. (b) If at any time a vacancy is created on the Board by reason of the incapacity, death, removal or resignation of an incumbent Investor Director, the Permitted Owners may designate a person to fill the vacancy (who promptly shall be appointed by the incumbent directors). If at any time an incumbent Investor Observer is unable to serve in that capacity by reason of his or her incapacity, death or resignation, the Permitted Owners may designate a person to fill the vacancy or may leave the position unfilled. 5 (c) At each meeting of stockholders of the Company at which directors are elected, the nominees for directors proposed by the Company shall include the Investor Director or Investor Directors required pursuant to this Agreement. 2.4 NOTICE AND MEETINGS; COMPLIANCE WITH POLICIES AND EXCHANGE ACT. (a) Each incumbent Investor Director and Investor Observer shall receive notice of each meeting of the Board of Directors at the same time and in the same manner as other members of the Board. Each Investor Observer shall be entitled to receive all information provided generally to members of the Board of Directors and shall treat such information as confidential to the same extent as would be required by an Investor Director in the observance of his or her fiduciary responsibilities as a director of the Company. Any Investor Observer may be excluded from meetings of the Board during consideration by the Board of any matter that, in the opinion of counsel to the Company, is or may be subject to the attorney-client privilege and any materials relating to any such matter may be withheld from such observer. Each incumbent Investor Director shall be entitled to indemnification rights, travel and expense reimbursement and cash compensation (but not options or other equity-based compensation) substantially similar to those of other non-employee directors of the Company and each Investor Observer shall be entitled to such similar travel and expenses reimbursement. The Company shall at all times maintain a directors' and officer' insurance policy covering each incumbent Investor Director that provides in the aggregate substantially the same coverage as the policy covering the current directors of the Company as of the date of this Agreement. (b) Each Investor Director and Investor Observer shall comply with the policies established by the Company with respect to the timing of purchases or sales of the Company's Common Stock and shall in any event comply with the provisions of the Exchange Act and the rules of the Commission thereunder with respect to information they receive from the Company as Investor Directors or Investors Observers. Each Investor Director shall timely file all reports that he or she may be required to file under the Exchange Act and the rules of the Commission thereunder. 2.5 ACTIONS BY PERMITTED OWNERS. Any action by Permitted Owners under this Section 2 shall be by majority vote of the number of shares of Underlying Common Stock then beneficially owned by them, with each such share having one vote. 3. CERTAIN ACTIONS OF THE COMPANY. 3.1 INVESTOR AGENTS. Until the covenants in Section 3.2 terminate as provided in Section 3.5, the Permitted Owners shall appoint two persons to serve as Investor Agents to act in accordance with Sections 3.3, 3.4 and 5.2. Until the Permitted Owners notify the Company of the persons who they have designated as the Investor Agents, Michael A. Krupka and Anthony J. DiNovi shall be deemed to be the Investor Agents. 6 3.2 ACTIONS. Subject to Section 3.5, the Company shall not, directly or indirectly through any Subsidiary, do any of the following (whether in one or a series of related actions or transactions) without the approval of the Investor Agents: (a) increase the size of the Board to more than 11 directors; (b) amend, modify or change any provision of the Certificate of Incorporation, or Bylaws, other than (i) in a manner that would not reasonably be expected to adversely affect the holders of the Preferred Stock or Option Preferred Stock or (ii) as contemplated by the Transaction Documents; (c) incur any Indebtedness in excess of $200 million in the aggregate, other than (i) Indebtedness arising under the Senior Loan Agreement and (ii) Permitted Debt (as defined in subsections (ii), (iii), (v) and (vi) of the definition of Permitted Debt in the Senior Loan Agreement); (d) acquire an interest in or invest in any business (through an acquisition, purchase of assets, purchase of securities, formation of a division or otherwise) for cash or other consideration having a value in excess of $25 million if the business is outside the business of selling telecommunications-related services and activities reasonably related thereto; (e) declare or pay any dividend or make any distribution or other payment to holders of Common Stock or any other securities junior in right of payment to the Preferred Stock or Option Preferred Stock other than pursuant to Common Stock subdivisions or combinations as described in Section 4.3 of the Certificate of Designation or Option Stock Designation; (f) directly, or indirectly, purchase, redeem or retire any shares of the Company's capital stock or any shares of capital stock of its Subsidiaries which shares are not owned by the Company or a wholly-owned Subsidiary of the Company or make any offer to purchase, redeem or retire, any shares of the Company's outstanding capital stock, other than the Preferred Stock pursuant to Section 5 of the Certificate of Designation, Option Preferred Stock pursuant to Section 5 of the Option Stock Designation or Series C Preferred Stock pursuant to Section 5 of the Series C Designation, in each case as in effect on the date of initial issuance of any shares thereunder; provided that the Company may repurchase up to $100 million of the Common Stock at prices less than $30 per share (as adjusted for the events described in Section 4.3 of the Certificate of Designation or Option Stock Designation), but only if, in the written opinion of counsel to the Company in form and substance reasonably satisfactory to the Investor Agents, any of such purchases would not be treated as the receipt of cash or property by stockholders for purposes of Section 305(b)(2) of the Code; (g) enter into, or permit any Subsidiary to enter into, any transaction (including, without limitation, making any advance to or investment in a customer or any purchase, sale, lease or exchange of property or the rendering of any service), or amend any agreements in effect as of the date of this Agreement, with (i) any Affiliate of the Company (other than a Subsidiary) or (ii) any Person in which any Affiliate of the Company has, in the case of any private entity, an investment of at least $250,000 (the "Private Entity Threshold") or, in the case of a public entity, beneficially owns at least 5% of the publicly traded securities of any such entity that files or is required to file reports pursuant to Section 13(a) or 15(d) of the Exchange Act (the "Public Entity Threshold") or (iii) any Person in which any Affiliate of the Company has, in the case of any private entity, an investment of less than the Private Entity Threshold or, in the case of a public entity, beneficially owns less than the Public Entity Threshold unless such transaction is entered into on an arms-length basis; provided, however, that nothing contained in this Section 3.2(g) shall prohibit: 7 (i) transactions existing as of the date hereof that are listed on Schedule 5.21 to the Purchase Agreement; (ii) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options, stock purchase plans, stock ownership plans or other equity-based incentive or compensation plans and other reasonable fees, compensation, benefits and indemnities paid or entered into by the Company or its Subsidiaries in the ordinary course of business to or with its officers, directors or employees; provided, however, that neither Richard T. Aab nor Tansukh V. Ganatra shall be entitled to participate in any stock option, stock ownership, stock appreciation or similar equity-based plan; (iii) loans or advances to employees (other than Richard T. Aab and Tansukh V. Ganatra) in the ordinary course of business of the Company or any of its Subsidiaries not to exceed $1,000,000 in the aggregate at any one time outstanding; (iv) transactions between the Company and a wholly-owned Subsidiary or between wholly-owned Subsidiaries; (v) payments to Three Morrocroft Centre, LLC in accordance with the terms of the Company's lease for the use and occupancy of its corporate offices in Charlotte, North Carolina; (vi) payments to Lincoln Harris LLC for real estate services in accordance with past practices, not to exceed $400,000 in any fiscal year; (vii) payments to an Affiliate of Richard T. Aab for the use by the Company's directors, executive officers and key employees for business purposes of an aircraft owned by such Affiliate, not to exceed $150,000 in any fiscal year, at rates no higher than those that could be obtained in an arms' length transaction with an unrelated third party; and (viii) sales contracts for telecommunication services entered into by the Company's sales representatives on an arms-length basis with customers in the ordinary course of business on terms which are consistent with past practices or which are consistent with practices in the industry at the time any such contract is negotiated and that provide for payments to the Company of not more than $5,000 per month or $60,000 per year by a single customer; 8 (h) terminate the employment of or hire a replacement for any one of Tansukh V. Ganatra, Michael K. Robinson or Aaron D. Cowell, Jr. (each a "Key Employee"); provided that a Key Employee may be replaced by any other Key Employee or, if the position to be replaced is the Chief Executive Officer or President of the Company and the replacement is not a Key Employee, the replacement individual or individuals shall have been approved by a majority of the members of the Board which majority shall include at least one Investor Director; (i) acquire, or permit any Subsidiary to acquire, any interest in any Person or business (whether by purchase of assets, purchase of stock, merger or otherwise), involving an aggregate consideration (including assumed liabilities) equal to 20% or more of the Total Enterprise Value of the Company in any one transaction or series of related transactions; or (j) enter into, or become the subject of, or permit any Subsidiary to enter into or become the subject of, any transaction of merger, acquisition or consolidation, or convey, sell, lease, transfer or otherwise dispose of, or permit any Subsidiary to convey, sell, lease, transfer or otherwise dispose of, in one transaction or a series of transactions, all or any substantial part of the Company's or any Subsidiary's business or assets, whether now owned or hereafter acquired, other than (i) a merger or consolidation between the Company and any wholly-owned Subsidiary or between one wholly-owned Subsidiary and another, and (ii) acquisitions permitted pursuant to Section 3.1(i). 3.3 NOTICE REQUIREMENTS AND DEFAULT. (a) The Company shall notify the Investor Agents of any inadvertent or other violation of a covenant in Section 3.2 within five Business Days of the occurrence thereof (which notice shall contain a brief description of such violation and the actions, if any, that the Company proposes to take to cure any such violation) (the "Company Notice"). In addition, the Investor Agents may notify the Company at any time that they believe there has been a violation of a covenant in Section 3.2 (the "Agent Notice"). (b) Upon the issuance of a Company Notice or Agent Notice, the Company shall, for a period of 30 days from the date of such notice, have the right to cure any violation specified in the Company Notice or Agent Notice or in the event that such breach is not susceptible to cure in such 30-day period and is susceptible to cure within 90 days, such longer period, not to exceed 90 days, so long as the Company is proceeding diligently and in good faith during such 90-day period to cure any such violation and notifies the Investor Agents of the Company's proposed curative actions (the "Cure Period"). The Investor Agents and Permitted Owners shall not take any action to hinder or delay the Company's efforts to cure any such violation. If, upon the expiration of the Cure Period, the Company has not cured any such violation to the reasonable satisfaction of the Investor Agents, then the Investor Agents may give notice to the Company that such violation is a default by the Company in the observance of the covenants in Section 3.2 (which notice shall specify the covenant or covenants as to which a default has occurred). Upon receipt of such notice by the Company (an "Event of Default"), the Investor Agents shall be entitled to exercise the remedies set forth in Section 3.4 that, do not by their terms, operate automatically upon an Event of Default. 9 3.4 REMEDIES UPON AN EVENT OF DEFAULT. (a) If an Event of Default occurs with respect to the covenant in Section 3.2(a), the Investor Agents shall be entitled to take or cause the Company to take a Board Action. (b) If an Event of Default occurs with respect to a covenant in Section 3.2(b), (c), (d), (g), (i) or (j), the Investor Agents shall be entitled to take or cause the Company to take a Board Action and the Conversion Price of the Preferred Stock then in effect under the Certificate of Designation, and the Conversion Price of the Option Preferred Stock then in effect under the Option Stock Designation, shall each be automatically decreased by 10%; provided that for purposes of determining whether the remedies under this Section 3.4(b) shall apply, the dollar amount set forth in Section 3.2(c) shall be deemed to be $240 million and the dollar amount set forth in Section 3.2(d) shall be deemed to be $30 million. (c) If an Event of Default occurs with respect to a covenant in Section 3.2(e) or (f), the Conversion Price of the Preferred Stock then in effect under the Certificate of Designation, and the Conversion Price of the Option Preferred Stock then in effect under the Option Stock Designation shall each be automatically decreased by 10%. (d) If an Event of Default occurs with respect to the covenant in Section 3.2(h), the Investor Agents shall be entitled to nominate one additional Investor Director to the Board who shall serve in such capacity, subject to the provisions of Sections 2.3 and 2.4, until such time as the Permitted Owners cease to be entitled to nominate any person to the Board pursuant to Section 2.2(c). 3.5 TERMINATION. The covenants in Section 3.2 shall terminate as follows. (a) The covenants in Sections 3.2(a), (b), (c), (d), (e) and (f) shall terminate when the Permitted Owners, in the aggregate, cease to beneficially own at least 50,000 shares of the Preferred Stock or at least 50,000 shares of Option Preferred Stock, in each case determined without regard to any preferential dividends that accrue or are issued or paid with respect to the Preferred Stock and the Option Preferred Stock. (b) The covenants in Sections 3.2(g) and (h) shall terminate when the Permitted Owners, in the aggregate, cease to beneficially own at least 25% of the Underlying Common Stock. (c) The covenant in Section 3.2(i) shall terminate upon the earlier of (A) the fourth anniversary of the Closing Date or (B) the redemption of the Preferred Stock pursuant to Section 5.2(b) of the Certificate of Designation and the Option Preferred Stock pursuant to Section 5.2(b) of the Option Stock Designation or (C) when the Permitted Owners, in the aggregate, cease to beneficially own at least 25% of the Underlying Common Stock. (d) The covenant in Section 3.2(j) shall terminate upon the earlier of (A) the fourth anniversary of the Closing Date or (B) the redemption of the Preferred Stock pursuant to Section 5.2(b) of the Certificate of Designation and the Option Preferred Stock pursuant to Section 5.2(b) or the Option Stock Designation or (C) when the Permitted Owners, in the aggregate, cease to beneficially own at least 25% of the Underlying Common Stock; provided that if (x) the Permitted Owners of Preferred Stock or Option Preferred Stock shall have converted all of such Preferred Stock or Option Preferred Stock into Common Stock pursuant to Section 5.2(a) of the Certificate of Designation or Section 5.2(a) of the Option Stock Designation at any time on or after the third anniversary of the Closing Date, (y) prior to the fourth anniversary of the Closing Date any of the actions described in Section 3.2(j) shall occur, and (z) as a result of such actions, the Permitted Owners receive less than the equivalent value (in cash or other consideration) of 150% of the Conversion Price in effect at the time their Preferred Stock or Option Preferred Stock, as applicable, was converted into Common Stock, then the Company shall pay to such Permitted Owners the deficiency in cash (which determination shall be made by the Company's independent auditors as soon as practicable whose determination, absent demonstrable error, shall be final) simultaneously with the consummation of any action in Section 3.2(j). 10 4. RESTRICTIONS ON TRANSFER. No Investor shall Transfer any Preferred Stock, any rights under the Option Agreement or Option Preferred Stock except for (a) Transfers to Permitted Transferees, and (b) after the third anniversary of the Closing Date, Transfers of Preferred Stock or Option Preferred Stock in amounts greater than $50 million (determined based upon the Stated Value of such shares); provided that in no event shall shares of Preferred Stock, rights under the Option Agreement or Option Preferred Stock be transferred to a Competitor or any person acting as a representative of a Competitor. The foregoing restrictions on Transfers shall not apply to (i) the Transfer of any Preferred Stock or Option Preferred Stock which a Permitted Owner has a right to have redeemed pursuant to Section 5.1 of the Certificate of Designation or Section 5.1 of the Option Stock Designation but which for any reason the Company has failed to redeem within 30 days after the Permitted Owner's exercise of his or its redemption right or (ii) Transfers of any Preferred Stock, rights under the Option Agreement or Option Preferred Stock upon the occurrence of an Acquisition Event or Change of Control. Shares of Common Stock issued upon conversion of the Preferred Stock or the Option Preferred Stock shall not be subject to any restrictions on Transfer except such restrictions as may apply under the Securities Act or the rules of the Commission issued thereunder. 5. MISCELLANEOUS. 5.1 NOTICES. All notices, requests, claims, demands and other communications ("Notices") under this Agreement shall be in writing and sent by certified or registered mail, return receipt requested, a recognized overnight courier service, telecopier or personal delivery, as follows: 11 (a) if to Company, to: US LEC Corp. Transamerica Square 401 N. Tryon Street, Suite 1000 Charlotte, North Carolina 28202 Attention: General Counsel Telecopier: (704) 319-3098 with a required copy to: Moore & Van Allen, PLLC 100 North Tryon Street, Floor 47 Charlotte, North Carolina 28202-4003 Attention: Barney Stewart III Telecopier: (704) 331-1151 (b) if to the Investors and/or the Investor Agents, in care of: Bain Capital, Inc. Two Copley Place Boston, Massachusetts 02116 Attention: Ian K. Loring Telecopier: (617) 572-3274 and Thomas H. Lee Partners, L.P. 75 State Street, 26th Floor Boston, Massachusetts 02109 Attention: Anthony J. DiNovi Telecopier: (617) 227-3514 with a required copy to: Ropes & Gray One International Plaza Boston, Massachusetts 02110-2624 Attention: Philip J. Smith Telecopier: (617) 951-7050 All Notices shall be deemed to have been duly given: when delivered by hand, if personally delivered; when delivered by courier, if delivered by commercial overnight courier service; five business days after being deposited in the mail, postage prepaid, if mailed; and when receipt is acknowledged, if telecopied. A party may change its address for purposes of this Agreement by Notice in accordance with this Section 5.1. 12 5.2 DETERMINATIONS, REQUESTS OR CONSENTS. (a) Any amendment, supplement or modification of or to any provision of this Agreement, any waiver of any provision of this Agreement, and any consent to any departure of the Company from the terms of any provision of this Agreement, shall be effective (i) only if it is made or given in writing and signed by the Company and the holders of at least 51% of the Underlying Common Stock than beneficially owned by the Permitted Owners in accordance with this Section 5.2, and (ii) only in the specific instance and for the specific purpose for which made or given. All determinations, requests, consents, waivers or amendments to be made by the Permitted Owners in their opinion or judgment or with their approval or otherwise pursuant to this Agreement shall be made by Permitted Owners beneficially owning at least 51% of the Underlying Common Stock. (b) Notwithstanding the foregoing provisions of Section 5.2(a), any request by the Company for a consent to or waiver of a violation of a covenant in Section 3.2 shall be made in writing to the Investor Agent(s) and shall state clearly in bold face letters that it is a request for a consent or waiver with respect to the covenants set forth in Section 3.2 of this Agreement. The Investor Agents shall endeavor to respond in writing to such request within ten Business Days of the receipt thereof and, if the Investor Agent(s) fail to respond within such ten Business Day period, the violation that was the subject of the Company's request for a consent or waiver shall be deemed to have been denied. The Company shall be entitled to rely on any action or failure to act by the Investor Agent(s) pursuant to the foregoing sentence as an act or failure to act on behalf of, and binding upon, all of the Permitted Owners. 5.3 ENTIRE AGREEMENT. This Agreement supersedes all prior agreements between the parties with respect to its subject matter and constitutes a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. 5.4 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement shall be considered to give any Person other than the parties (and Permitted Transferees) any legal or equitable right, claim or remedy under or in respect of this Agreement or any provision of this Agreement. This Agreement and all of its provisions are for the sole and exclusive benefit of the parties and their respective successors and permitted assigns. 5.5 EQUITABLE RELIEF. In addition to any other remedies which may be available (including any remedies available under Section 3.4), the Company and each Permitted Owner shall be entitled to seek equitable relief, including injunctive relief and specific performance, in the event of any breach of the provisions of this Agreement, the Certificate of Designation or the Option Stock Designation by another party. 5.6 SEVERABILITY. If any provision of this Agreement is held invalid or unenforceable by a court of competent jurisdiction, the other provisions of this Agreement shall remain in full force and effect. Any provision of this Agreement which is held invalid or unenforceable only in part shall remain in full force and effect to the extent not held invalid or unenforceable. 13 5.7 CAPTIONS. The captions of sections of this Agreement are for convenience only and shall not affect the construction or interpretation of this Agreement. 5.8 CONSTRUCTION. All references in this Agreement to "Section" or "Sections" refer to the corresponding section or sections of this Agreement. All words used in this Agreement shall be construed to be of the appropriate gender or number as the context requires. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms. 5.9 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be considered an original copy of this Agreement and all of which, when taken together, shall be considered to constitute one and the same agreement. 5.10 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without regard to that state's conflicts of laws principles. 5.11 BINDING EFFECT. This Agreement shall apply to, be binding in all respects upon and inure to the benefit of parties and their respective successors and permitted assigns. 14 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written. US LEC CORP. By: /s/ Michael K. Robinson ------------------------------------ Name: Michael K. Robinson Title: Executive Vice President and Chief Financial Officer BAIN CAPITAL CLEC INVESTORS, L.L.C. By: Bain Capital Fund VI, L.P., its Administrative Member By: Bain Capital Partners VI, L.P., its General Partner By: Bain Capital Investors VI, Inc., its general partner By: /s/ Michael A. Krupka ------------------------------------ Name: Michael A. Krupka Title: Managing Director THOMAS H. LEE EQUITY FUND IV, L.P. By: THL Equity Advisors IV, LLC, its general partner By: /s/ Anthony J. DiNovi ------------------------------------ Name: Anthony J. DiNovi Title: Managing Director 15 THOMAS H. LEE FOREIGN FUND IV-B, L.P. By: THL Equity Advisors IV, LLC, its general partner By: /s/ Anthony J. DiNovi ------------------------------------ Name: Anthony J. DiNovi Title: Managing Director THOMAS H. LEE FOREIGN FUND IV, L.P. By: THL Equity Advisors IV, LLC, its general partner By: /s/ Scott M. Sperling ------------------------------------ Name: Scott M. Sperling Title: Managing Director PUTNAM INVESTMENTS, INC. By: /s/ William H. Woolverton ------------------------------------ Name: William H. Woolverton Title: Managing Director 1997 THOMAS H. LEE NOMINEE TRUST By: /s/ Gerald Wheeler ------------------------------------ Trustee 16 THOMAS H. LEE CHARITABLE INVESTMENT L.P. By: /s/ Thomas H. Lee ------------------------------------ Name: Thomas H. Lee Title: President /s/ David V. Harkins ------------------------------------ DAVID V. HARKINS THE HARKINS 1995 GIFT TRUST By: /s/ Sheryll J. Harkins ------------------------------------ Trustee /s/ Scott A. Schoen ------------------------------------ SCOTT A. SCHOEN /s/ C. Hunter Boll ------------------------------------ C. HUNTER BOLL /s/ Scott M. Sperling ------------------------------------ SCOTT M. SPERLING /s/ Anthony J. DiNovi ------------------------------------ ANTHONY J. DINOVI /s/ Thomas M. Hagerty ------------------------------------ THOMAS M. HAGERTY /s/ Warren C. Smith, Jr. ------------------------------------ WARREN C. SMITH, JR. /s/ Seth W. Lawry ------------------------------------ SETH W. LAWRY 17 /s/ Kent R. Weldon ------------------------------------ KENT R. WELDON /s/ Terrence M. Mullen ------------------------------------ TERRENCE M. MULLEN /s/ Todd M. Abbrecht ------------------------------------ TODD M. ABBRECHT /s/ Charles A. Brizius ------------------------------------ CHARLES A. BRIZIUS /s/ Scott Jaeckel ------------------------------------ SCOTT JAECKEL /s/ Soren Oberg ------------------------------------ SOREN OBERG /s/ Thomas R. Shepherd ------------------------------------ THOMAS R. SHEPHERD /s/ Wendy L. Masler ------------------------------------ WENDY L. MASLER /s/ Andrew D. Flaster ------------------------------------ ANDREW D. FLASTER ROBERT SCHIFF LEE 1988 IRREVOCABLE TRUST By: /s/ Charles W. Robins -------------------------------- Trustee 18 /s/ Stephen Zachary Lee ------------------------------------ STEPHEN ZACHARY LEE /s/ Charles W. Robins ------------------------------------ CHARLES W. ROBINS AS CUSTODIAN FOR JESSE LEE /s/ Charles W. Robins ------------------------------------ CHARLES W. ROBINS AS CUSTODIAN FOR NATHAN LEE /s/ Charles W. Robins ------------------------------------ CHARLES W. ROBINS /s/ James Westra ------------------------------------ JAMES WESTRA THL-CCI INVESTORS LIMITED PARTNERSHIP By: THL Investment Management Corp., its general partner By: ------------------------------------ Name: Title: /s/ Adam A. Abramson ------------------------------------ ADAM A. ABRAMSON /s/ Joanne M. Ramos ------------------------------------ JOANNE M. RAMOS /s/ P. Holden Spaht ------------------------------------ P. HOLDEN SPAHT 19 /s/ Nancy M. Graham ------------------------------------ NANCY M. GRAHAM /s/ Gregory A. Ciongoli ------------------------------------ GREGORY A. CIONGOLI /s/ Wm. Matthew Kelly ------------------------------------ WM. MATTHEW KELLY /s/ Kevin F. Sullivan ------------------------------------ KEVIN F. SULLIVAN /s/ Diane M. Barriere ------------------------------------ DIANE M. BARRIERE /s/ Kim H. Oakley ------------------------------------ KIM H. OAKLEY 20 EX-4.4 5 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT This Agreement is entered into as of April 11, 2000 by US LEC Corp., a Delaware corporation (the "Company"), and the Persons whose names are set forth on the attached Schedule I (collectively, the "Investors"). A. The Company and the Investors have entered into a Series A Convertible Preferred Stock Purchase Agreement, dated as of the same date as this Agreement (the "Purchase Agreement"), pursuant to the terms and conditions of which (i) the Company is issuing and selling to the Investors, and the Investors are purchasing from the Company, an aggregate of up to 200,000 shares of Series A Convertible Preferred Stock and (ii) the Company is issuing an option (the "Option") to the Investors to purchase an aggregate of 100,000 shares of convertible preferred stock pursuant to the terms and conditions of an Option Agreement, dated as of the same date as this Agreement (the 200,000 shares of Series A Convertible Preferred Stock, the number of shares of convertible preferred stock (the "Option Stock") issued to the Investors upon the exercise of the Option, and any shares of convertible preferred stock issued as preferential dividends pursuant to the terms of the Series A Convertible Preferred Stock and Option Stock are collectively referred to herein as the "Preferred Shares"). B. The parties' execution and delivery of this Agreement is a condition of their respective obligations to close the Purchase Agreement. The parties agree as follows: 1. DEFINITIONS. Capitalized terms which are used in this Agreement without being defined have the same meanings that they are given in the Purchase Agreement. In addition, the following terms have these meanings: "REGISTRABLE SECURITIES" means (i) any shares of Common Stock issued or issuable upon conversion of the Preferred Shares and (ii) any shares of Common Stock issued or issuable (A) as a dividend or distribution in respect of, or (B), in exchange for or replacement of, or (C) upon conversion or exercise of any warrant or other security issued or issuable as a dividend or distribution in respect of or in exchange for or replacement of, the Preferred Shares and any shares of Common Stock issued or issuable upon conversion of the Preferred Shares. Any Registrable Securities shall cease to be Registrable Securities (i) when they have been distributed to the public pursuant to a offering registered under the Securities Act or sold to the public through a broker, dealer or market maker in compliance with Rule 144 under the Securities Act (or any similar rule then in force) or repurchased by the Company or any Subsidiary or (ii) if and when they (or, in respect of issuable but not yet issued Registrable Securities, the underlying Preferred Shares or Common Stock) cease to be held by an Investor, a Permitted Transferee (as "Permitted Transferee" is defined in the Corporate Governance Agreement) or a transferee to whom an Investor or a Permitted Transferee has transferred Registrable Securities with a value of at least $50 million. "REGISTRATION EXPENSES" means all expenses incident to the Company's performance of or compliance with this Agreement, including all registration and filing fees, fees and expenses of compliance with securities or blue sky laws, printing expenses, messenger and delivery expenses, fees and disbursements of custodians, and fees and disbursements of counsel for the Company and all independent certified public accountants, underwriters (excluding discounts, commissions and underwriters' counsel fees) and other Persons retained by the Company. "VIOLATION" means any of the following statements, omissions or violations: (i) any untrue statement or alleged untrue statement of a material fact contained or incorporated by reference in a registration statement pursuant to this Agreement, including any related preliminary or final prospectus, any amendment or supplement, or any document filed under state securities or "blue sky" laws, (ii) the omission or alleged omission to state a material fact required to be stated in any such registration statement, prospectus, amendment, supplement or document or necessary to make the statements in any such registration statement, prospectus, amendment, supplement or document not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law, or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law. 2. DEMAND REGISTRATIONS. 2.1 GENERAL. On or at any time after the second anniversary of Closing, holders of a majority of the Registrable Securities then outstanding may request registration under the Securities Act of all or any portion of their Registrable Securities. All registrations requested pursuant to this Section 2.1 are referred to in this Agreement as "Demand Registrations." Holders of Registrable Securities then outstanding shall be limited to three Demand Registrations and each such Demand Registration must include an initial request to register Registrable Securities having an aggregate offering value of at least $20 million. In regard to Demand Registrations: (a) Each request for a Demand Registration shall specify the approximate number of Registrable Securities requested to be registered. Within 10 Business Days after receipt of any request for a Demand Registration, the Company shall give written notice of the requested registration to all other holders of Registrable Securities and, subject to Section 2.2 below, shall include in the registration all Registrable Securities with respect to which the Company has received written requests for inclusion within 15 Business Days after receipt of the Company's notice. (b) A Demand Registration shall not be counted as one of the three permitted Demand Registrations unless (i) it has become effective and (ii) the Persons making the request are able to register and sell at least 75% of the Registrable Securities included in the registration. 2 (c) The Company shall pay all Registration Expenses in connection with any Demand Registration whether or not it is counted as one of the three permitted Demand Registrations. (d) Demand Registrations shall be on Form S-2 or Form S-3 or any similar short-form registration statement, if available. Otherwise Demand Registrations shall be on Form S-1 or any similar long-form registration statement. (e) The Company shall have the right to select the managing underwriters in connection with an underwritten public offering of Registrable Securities, subject to the approval of a majority of the holders of the Registrable Securities included in any Demand Registration which approval shall not be unreasonably withheld, and holders of a majority of the Registrable Securities included in any Demand Registration shall have the right to select a co-managing underwriter, subject to the Company's approval which shall not be unreasonably withheld. (f) The holders of a majority of the Registrable Securities included in any Demand Registration shall have the right to select the investment banker(s) and manager(s) to administer an offering of Registrable Securities that is not an underwritten public offering, subject to the Company's approval which shall not be unreasonably withheld. 2.2 PRIORITY ON DEMAND REGISTRATIONS. The Company will not include in any Demand Registrations any securities which are not Registrable Securities without the prior written consent of the holders of a majority of the Registrable Securities included in such registration. If a Demand Registration is an underwritten offering and the managing underwriters advise the Company in writing that in their opinion the number of Registrable Securities and, if permitted hereunder, other securities requested to be included in such offering exceeds the number of Registrable Securities, and other securities, if any, that can be sold without adversely affecting the marketability of the offering, the Company shall include in the registration (i) FIRST, the number of Registrable Securities requested to be included which in the opinion of the underwriters can be sold without adversely affecting the marketability of the offering, pro rata among the respective holders thereof on the basis of the number of Registrable Securities owned by each such holder, and (ii) SECOND, other securities requested to be included in such Demand Registration, pro rata among the holders of such securities on the basis of the number of such securities owned by each such holder. 3 2.3 RESTRICTIONS ON DEMAND REGISTRATIONS. The Company shall not be obligated to effect more than two Demand Registrations in any 12-month period. The Company shall not be obligated to effect any Demand Registration within 180 days after the effective date of a previous Demand Registration or a previous registration in which the holders of Registrable Securities were given piggyback rights pursuant to Section 3 and, in the case of a previous Demand Registration, were able to register and sell at least 75% of the Registrable Securities proposed to be included in such registration or, in the case of a previous Piggyback Registration, were able to register and sell at least 50% of the Registrable Securities proposed to be included in such registration. The Company may postpone for up to 90 days the filing or the effectiveness of a registration statement for a Demand Registration if a certificate signed by an executive officer of the Company is promptly furnished to the holders requesting the Demand Registration stating that the Board of Directors of the Company has determined that such a Demand Registration would reasonably be expected to have a material adverse effect on any proposal or plan by the Company to engage in any acquisition of assets (other than in the ordinary course of business) or any merger, consolidation, tender offer, reorganization or similar transaction. In addition, the Company may postpone for up to 180 days the filing of a registration statement for a Demand Registration if a certificate signed by an executive officer of the Company is promptly furnished to the holders requesting the Demand Registration stating that the Company intends to file a registration statement for a primary offering of its debt or equity securities within the next 60 days so long as the Company is at all times proceeding in good faith to make such registration statement effective. In the event the filing or the effectiveness of a registration statement is postponed pursuant to this Section 2.3, the holders of Registrable Securities initially requesting the Demand Registration shall be entitled to withdraw their request. If their request is withdrawn, the Demand Registration shall not count as one of the three permitted Demand Registrations and the Company will pay all Registration Expenses in connection with such registration. The Company may delay the filing or suspend the effectiveness of a Demand Registration pursuant to this Section 2.3 only once in any 12-month period. 3. PIGGYBACK REGISTRATIONS. 3.1 RIGHT TO PIGGYBACK. After the first anniversary of Closing, whenever the Company proposes to register any of its equity securities under the Securities Act (other than (i) pursuant to a Demand Registration or (ii) a registration on Form S-4 or Form S-8 or any successor or similar form) and the registration form to be used may be used for the registration of Registrable Securities (a "Piggyback Registration"), whether or not for sale for its own account, the Company shall give prompt written notice to all holders of Registrable Securities of its intention to effect such a registration and shall include in the registration all Registrable Securities with respect to which the Company has received written requests for inclusion within 15 Business Days after receipt of the Company's notice. Holders of Registrable Securities shall be entitled to unlimited Piggyback Registrations for their Registrable Securities. 3.2 PIGGYBACK EXPENSES. The Registration Expenses of the holders of Registrable Securities shall be paid by the Company in all Piggyback Registrations. 4 3.3 PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback Registration is an underwritten primary registration on behalf of the Company, and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in the registration exceeds the number that can be sold without adversely affecting the marketability of the offering, the Company shall include in the registration (i) first, the securities that the Company proposes to sell, (ii) second, the Registrable Securities requested to be included in the registration and any other securities requested to be included in such registration by the holders thereof who have been granted rights by the Company to participate in a Piggyback Registration pari passu with the holders of Registrable Securities pursuant to Section 10.1, pro rata among the holders of the Registrable Securities and the holders of such other securities on the basis of the number of the Registrable Securities and such other securities owned by each holder, and (iii) third, any other securities requested to be included in the registration. 3.4 PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback Registration is an underwritten secondary registration on behalf of holders of the Company's securities (other than on behalf of holders of Registrable Securities that have initiated a Demand Registration pursuant to Section 2), and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in the registration exceeds the number that can be sold without adversely affecting the marketability of the offering, the Company shall include in the registration (i) first, the securities requested to be included therein by the holders requesting such registration and the Registrable Securities requested to be included in the registration, pro rata among the holders thereof on the basis of the number of such securities and Registrable Securities owned by each such holder, and (ii) second, any other securities requested to be included in the registration. 3.5 OTHER REGISTRATIONS. If the Company has previously filed a registration statement with respect to Registrable Securities pursuant to Section 2 or pursuant to this Section 3, and if the previous registration has not been withdrawn or abandoned, the Company shall not file or cause to be effected any other registration of any of its equity securities or securities convertible or exchangeable into or exercisable for its equity securities under the Securities Act (except on Form S-4 or Form S-8 or any successor or similar forms), whether on its own behalf or at the request of any holder or holders of its securities, until a period of at least 180 days has elapsed from the effective date of the previous registration or, if shorter, a period of at least 60 days has elapsed from the date all securities covered by such registration have been disposed of. 4. HOLDBACK AGREEMENTS. 4.1 HOLDERS OF REGISTRABLE SECURITIES. Each holder of Registrable Securities shall not effect any public sale or distribution (including sales pursuant to Rule 144) of equity securities of the Company, or any securities convertible into or exchangeable or exercisable for equity securities of the Company, during the seven days prior to and the 120-day period beginning on the effective date of any Demand Registration or any underwritten Piggyback Registration in which Registrable Securities are included (except as part of such underwritten offering), unless the underwriters managing the registered public offering otherwise agree. 5 4.2 COMPANY. The Company shall not effect any public sale or distribution of its equity securities, or any securities convertible into or exchangeable or exercisable for such securities, during such period prior to and following the effective date of any underwritten Demand Registration or any underwritten Piggyback Registration as the Company and the underwriters managing the offering may agree. 5. REGISTRATION PROCEDURES. Whenever holders of Registrable Securities have requested that any Registrable Securities be registered pursuant to this Agreement, the Company shall use its reasonable best efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition. In this regard, the Company will as expeditiously as possible: (a) prepare and file with the Commission a registration statement with respect to such Registrable Securities and use its reasonable best efforts to cause the registration statement to become effective; (b) notify each holder of Registrable Securities of the effectiveness of each registration statement filed under this Agreement and prepare and file with the Commission any amendments and supplements to the registration statement and the prospectus that may be necessary to keep the registration statement effective for a period of either (i) not less than 120 days (subject to extension pursuant to Section 8.2), or if such registration statement relates to an underwritten offering, such longer period as in the opinion of counsel for the underwriters a prospectus is required by law to be delivered in connection with sales of Registrable Securities by an underwriter or dealer or (ii) such shorter period as will terminate when all of the securities covered by such registration statement have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement (but in any event not before the expiration of any longer period required under the Securities Act), and to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement until such time as all of such securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement; (c) furnish to each seller of Registrable Securities the number of copies of the registration statement, each amendment and supplement, the prospectus included in the registration statement (including each preliminary prospectus) and any other documents that each seller may reasonably request in order to facilitate the disposition of the seller's Registrable Securities; (d) use its best efforts to register or qualify the Registrable Securities under such other securities or blue sky laws of such jurisdictions as any seller reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable the seller to consummate the disposition in those jurisdictions of the Registrable Securities owned by the seller (but the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph, (ii) subject itself to taxation in any such jurisdiction or (iii) consent to general service of process in any such jurisdiction); 6 (e) notify each seller of Registrable Securities, at any time when a prospectus relating to those securities is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in the registration statement contains an untrue statement of a material fact or omits any fact necessary to make the statements in the prospectus not misleading; and, at the request of any seller, the Company shall prepare a supplement or amendment to the prospectus so that, when delivered to purchasers of the Registrable Securities, the prospectus, as supplemented or amended, does not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements in the prospectus not misleading; (f) cause all such Registrable Securities to be quoted on the Nasdaq National Market System and listed on any other exchange on which the Company's shares of Common Stock are listed; (g) provide a transfer agent and registrar for all such Registrable Securities not later than the effective date of the registration statement; (h) enter into such customary agreements (including underwriting agreements in customary form) and take all other actions that holders of a majority of the Registrable Securities being sold or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of the Registrable Securities; (i) make available for inspection by any seller of Registrable Securities, any underwriter participating in any disposition pursuant to the registration statement and any attorney, accountant or other agent retained by any such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, employees and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with the registration statement; (j) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months beginning with the first day of the Company's first full calendar quarter after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158; and (k) in the event of the issuance of any stop order suspending the effectiveness of a registration statement, or of any order suspending or preventing the use of any related prospectus or suspending the qualification of any securities included in the registration statement for sale in any jurisdiction, use its reasonable best efforts promptly to obtain the withdrawal of such order. 7 6. REGISTRATION EXPENSES. 6.1 PAYMENT BY COMPANY. All Registration Expenses shall be borne as provided in this Agreement, except that the Company shall, in any event, pay its internal expenses (including all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit or quarterly review and the expenses and fees for listing the securities to be registered on the Nasdaq National Market System or any other exchange on which the Company's shares of Common Stock are listed. 6.2 FEES OF COUNSEL. In connection with each Demand Registration and each Piggyback Registration, the Company shall reimburse the holders of Registrable Securities included in the registration for the reasonable fees and disbursements of one counsel chosen by the holders of a majority of the Registrable Securities included in such registration. 6.3 PAYMENT BY HOLDERS. To the extent that Registration Expenses are not required to be paid by the Company, each holder of securities included in any registration under this Agreement shall pay those Registration Expenses allocable to the registration of such holder's securities so included, and any Registration Expenses not so allocable shall be borne by all sellers of securities included in the registration in proportion to the aggregate selling price of the securities to be so registered. 7. INDEMNIFICATION. 7.1 INDEMNIFICATION BY COMPANY. The Company agrees to indemnify, to the extent permitted by law, each holder of Registrable Securities, each Person who controls such holder (within the meaning of the Securities Act), and their respective partners, shareholders, trustees, members, officers and directors against all losses, claims, damages, liabilities and expenses caused by any Violation, except insofar as the Violation is caused by or contained in any information furnished in writing to the Company by the holder expressly for use in a registration statement, prospectus, amendment, supplement or related document or is caused by the holder's failure to deliver a copy of the registration statement or prospectus or any amendment or supplements after the Company has furnished the holder with a sufficient number of copies. In connection with an underwritten offering, the Company shall indemnify such underwriters, their officers and directors and each Person who controls such underwriters (within the meaning of the Securities Act) to the same extent provided in this Section 7.1 with respect to the indemnification of holders of Registrable Securities. 7.2 INDEMNIFICATION BY HOLDER. In connection with any registration statement pursuant to which a holder of Registrable Securities is selling Registrable Securities, the holder shall furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with the registration statement or prospectus and, to the extent permitted by law, shall indemnify the Company, its directors and any of its officers who signs such registration statement and each Person who controls the Company (within the meaning of the Securities Act) against any losses, claims, damages, liabilities and expenses resulting from any Violation to the extent that the Violation is caused by or contained in any information furnished in writing to the Company by the holder expressly for use in such registration statement, prospectus, amendment, supplement or related document. This obligation to indemnify shall be individual, not joint and several, for each holder and shall be limited to the net amount of proceeds received by the holder from the sale of Registrable Securities pursuant to the registration statement. 8 7.3 PROCEDURES. Any Person entitled to indemnification under this Section 7 shall, promptly after the receipt of notice of the commencement of any action, investigation, claim or other proceeding against such indemnified party in respect of which indemnity may be sought from an indemnifying party under this Section 7, notify the indemnifying party in writing of the commencement thereof. The omission of any indemnified party so to notify an indemnifying party of any such action shall not relieve the indemnifying party from any liability which it may have to such indemnified party under this Section 7 unless, and only to the extent that, such omission results in the indemnifying party's forfeiture of substantive rights or defenses or the indemnifying party is otherwise irrevocably prejudiced in defending such proceeding. In case any such action, claim or other proceeding shall be brought against any indemnified party for which indemnification is claimed pursuant to Section 7.1, and it shall notify the Company of the commencement thereof, the Company shall be entitled to assume the defense thereof at its own expense, with counsel satisfactory to the Company; provided, that any such indemnified party may, at its own expense, retain separate counsel to participate in such defense. Notwithstanding the foregoing, in any action, claim or proceeding in which both the Company, on the one hand, and an indemnified party, on the other hand, is, or is reasonably likely to become, a party, such indemnified party shall have the right to employ separate counsel at the Company's expense and to control its own defense of such action, claim or proceeding if, (a) the Company has failed to assume the defense and employ counsel as provided herein, (b) the Company has agreed in writing to pay such fees and expenses of separate counsel or (c) in the reasonable opinion of counsel to such indemnified party, a conflict or likely conflict exists between the Company, on the one hand, and such indemnified party, on the other hand, that would make such separate representation advisable, provided, however, that the Company shall not in any event be required to pay the fees and expenses of more than one separate counsel (and if deemed necessary by such separate counsel, appropriate local counsel who shall report to such separate counsel). The Company agrees that it will not, without the prior written consent of an indemnified party, settle, compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding relating to the matters contemplated hereby (if such indemnified party is a party thereto or has been actually threatened to be made a party thereto) unless such settlement, compromise or consent includes an unconditional release of such indemnified party from all liability arising or that may arise out of such claim, action or proceeding. The Company shall not be liable for any settlement of any claim, action or proceeding effected against an indemnified party without the prior written consent of the Company. The rights accorded to indemnified parties hereunder shall be in addition to any rights that any indemnified party may have at common law, by separate agreement or otherwise. 9 7.4 SURVIVAL. The indemnification under this Section 7 shall remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling Person of the indemnified party and shall survive the transfer of securities. The Company and each holder subject to Section 7.2 also agree to make such provisions as are reasonably requested by any indemnified party for contribution to the indemnified party in the event that the Company's or such holder's indemnification is unavailable for any reason. 8. PARTICIPATION IN UNDERWRITTEN REGISTRATION. 8.1 COOPERATION WITH UNDERWRITERS. No Person may participate in any underwritten registration pursuant to this Agreement unless the Person (i) agrees to sell securities on the basis provided in the underwriting arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of the underwriting arrangements. In any event, however, no holder of Registrable Securities included in any underwritten registration shall be required to make any representations or warranties to the Company or the underwriters (other than representations and warranties regarding the holder and the holder's intended method of distribution) or to undertake any indemnification obligations to the Company or the underwriters except as otherwise provided in Section 7.2. 8.2 DISCONTINUANCE OF DISPOSITIONS. Each Person that is participating in any registration hereunder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 5(e) above, such Person will forthwith discontinue the disposition of its Registrable Securities pursuant to the registration statement until such Person receives copies of a supplemented or amended prospectus as contemplated by such Section 5(e). In the event the Company shall give any such notice, the applicable time period mentioned in Section 5(b) during which a registration statement is to remain effective shall be extended by the number of days during the period from and including the date of the giving of such notice pursuant to this Section to and including the date when each seller of a Registrable Security covered by such registration statement shall have received the copies of the supplemented or amended prospectus contemplated by Section 5(e). 9. CURRENT PUBLIC INFORMATION. The Company will timely file all reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the Commission thereunder, and will take such further action as any holder or holders of Registrable Securities may reasonably request, all to the extent required to enable such holders to sell Registrable Securities pursuant to Rule 144 adopted by the Commission under the Securities Act (as such rule may be amended from time to time) or any similar rule or regulation hereafter adopted by the Commission and pursuant to Form S-3 or any similar short form registration statement. Upon written request, the Company will deliver to such holders a written statement as to whether it has complied with such requirements. In addition, unless the Common Stock is listed for trading on the New York Stock Exchange, the Company will continue to cause its Common Stock and any Common Stock issuable upon conversion of Purchaser Preferred Stock (including preferential dividends issued thereon) to be listed for trading on the Nasdaq National Market System. 10 10. MISCELLANEOUS. 10.1 NO INCONSISTENT AGREEMENTS. The Company shall not enter into any agreement with respect to its securities which is inconsistent with or violates the rights granted to the holders of Registrable Securities in this Agreement. Without limiting the generality of the foregoing, until the initial holders of Registrable Securities cease to hold at least 25% of the Underlying Common Stock, the Company shall not grant to any Person, other than Affiliates of the Company as of the date hereof, the right to request the Company to register any equity securities of the Company, or any securities convertible or exchangeable into or exercisable for such securities, without the prior written consent of the holders of a majority of the Registrable Securities. The Company may grant rights to other Persons to participate in Piggyback Registrations, however, so long as (i) such rights are subordinate to the rights of the holders of Registrable Securities with respect to such Piggyback Registrations as set forth in Sections 3.3 and 3.4 of this Agreement or (ii) such rights are pari passu with the rights of the holders of Registrable Securities with respect to such Piggyback Registration as set forth in Sections 3.3 and 3.4 of this Agreement and have been consented to by the holders of a majority of the Registrable Securities. 10.2 NOTICES. All notices, claims, demands and other communications ("Notices") under this Agreement shall be in writing and sent by certified or registered mail, return receipt requested, a recognized overnight courier service, telecopier or personal delivery, as follows: (a) if to the Company, to: US LEC Corp. Transamerica Square 401 N. Tryon Street, Suite 1000 Charlotte, North Carolina 28202 Attention: General Counsel Telecopier: (704) 319-3098 with a required copy to: Moore & Van Allen, PLLC 100 North Tryon Street, Floor 47 Charlotte, North Carolina 28202-4003 Attention: Barney Stewart III Telecopier: (704) 331-1151 11 (b) if to the Investors, in care of: Bain Capital, Inc. Two Copley Place Boston, Massachusetts 02116 Attention: Ian K. Loring Telecopier: (617) 572-3274 and Thomas H. Lee Partners, L.P. 75 State Street, 26th Floor Boston, Massachusetts 02109 Attention: Anthony J. DiNovi Telecopier: (617) 227-3514 with a required copy to: Ropes & Gray One International Plaza Boston, Massachusetts 02110-2624 Attention: Philip J. Smith Telecopier: (617) 951-7050 All Notices shall be deemed to have been duly given: when delivered by hand, if personally delivered; when delivered by courier, if delivered by commercial overnight courier service; five Business Days after being deposited in the mail, postage prepaid, if mailed; and when receipt is acknowledged by the individual to whom the telecopy is sent, if telecopied. A party may change its address for purposes of this Agreement by Notice in accordance with this Section 10.2. 10.3 WAIVER. The rights and remedies of the Company and holders of Registrable Securities are cumulative and not alternative. Neither the failure nor any delay by the Company or any holder of Registrable Securities in exercising any right, power or privilege under this Agreement shall operate as a waiver of that right, power or privilege, and no single or partial exercise of any right, power or privilege shall preclude any other or further exercise of that right, power or privilege or the exercise of any other right, power or privilege. All waivers shall be in writing signed by the party to be charged with the waiver, and no waiver that may be given by a party shall be applicable except in the specific instance for which it is given. 10.4 AMENDMENT. This Agreement may not be amended except by a written agreement signed by the Company and holders of a majority of the Registrable Securities. 10.5 SEVERABILITY. If any provision of this Agreement is held invalid or unenforceable by a court of competent jurisdiction, the other provisions of this Agreement shall remain in full force and effect. Any provision of this Agreement which is held invalid or unenforceable only in part shall remain in full force and effect to the extent not held invalid or unenforceable. 12 10.6 CAPTIONS. The captions of sections of this Agreement are for convenience only and shall not affect this the construction or interpretation of this Agreement. 10.7 CONSTRUCTION. All references in this Agreement to "Section" or "Sections" refer to the corresponding section or sections of this Agreement. All words used in this Agreement shall be construed to be of the appropriate gender or number as the context requires. Unless otherwise expressly provided, the word" including" does not limit the preceding words or terms. 10.8 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be considered an original copy of this Agreement and all of which, when taken together, shall be considered to constitute one and the same agreement. 10.9. ENTIRE AGREEMENT. This Agreement supercedes all prior agreements between the parties with respect to its subject matter and constitutes a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. 10.10 GOVERNING LAW. This Agreement shall be governed by the Laws of the State of Delaware without regard to conflicts of laws principles. 10.11 BINDING EFFECT. This Agreement shall apply to, be binding in all respects upon and inure to the benefit of the parties and their respective successors and permitted assigns and transferees. 13 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written. US LEC CORP. By: /s/ Michael K. Robinson ------------------------------------- Name: Michael K. Robinson Title: Executive Vice President and Chief Financial Officer BAIN CAPITAL CLEC INVESTORS, L.L.C. By: Bain Capital Fund VI, L.P., its Administrative Member By: Bain Capital Partners VI, L.P., its General Partner By: Bain Capital Investors VI, Inc., its general partner By: /s/ Michael A. Krupka ------------------------------------- Name: Michael A. Krupka Title: Managing Director THOMAS H. LEE EQUITY FUND IV, L.P. By: THL Equity Advisors IV, LLC, its general partner By: /s/ Anthony J. DiNovi ------------------------------------- Name: Anthony J. DiNovi Title: Managing Director 14 THOMAS H. LEE FOREIGN FUND IV-B, L.P. By: THL Equity Advisors IV, LLC, its general partner By: /s/ Anthony J. DiNovi ------------------------------------- Name: Anthony J. DiNovi Title: Managing Director THOMAS H. LEE FOREIGN FUND IV, L.P. By: THL Equity Advisors IV, LLC, its general partner By: /s/ Scott M. Sperling ------------------------------------- Name: Scott M. Sperling Title: Managing Director PUTNAM INVESTMENTS, INC. By: /s/ William H. Woolverton ------------------------------------- Name: William H. Woolverton Title: Managing Director 1997 THOMAS H. LEE NOMINEE TRUST By: /s/ Gerald Wheeler ------------------------------------- Trustee THOMAS H. LEE CHARITABLE INVESTMENT L.P. By: /s/ Thomas H. Lee ------------------------------------- Name: Thomas H. Lee Title: President /s/ David V. Harkins ------------------------------------- DAVID V. HARKINS 15 THE HARKINS 1995 GIFT TRUST By: /s/ Sheryll J. Harkins ------------------------------------- Trustee /s/ Scott A. Schoen ------------------------------------- SCOTT A. SCHOEN /s/ C. Hunter Boll ------------------------------------- C. HUNTER BOLL /s/ Scott M. Sperling ------------------------------------- SCOTT M. SPERLING /s/ Anthony J. DiNovi ------------------------------------- ANTHONY J. DINOVI /s/ Thomas M. Hagerty ------------------------------------- THOMAS M. HAGERTY /s/ Warren C. Smith, Jr. ------------------------------------- WARREN C. SMITH, JR. /s/ Seth W. Lawry ------------------------------------- SETH W. LAWRY /s/ Kent R. Weldon ------------------------------------- KENT R. WELDON /s/ Terrence M. Mullen ------------------------------------- TERRENCE M. MULLEN 16 /s/ Todd M. Abbrecht ------------------------------------- TODD M. ABBRECHT /s/ Charles A. Brizius ------------------------------------- CHARLES A. BRIZIUS /s/ Scott Jaeckel ------------------------------------- SCOTT JAECKEL /s/ Soren Oberg ------------------------------------- SOREN OBERG /s/ Thomas R. Shepherd ------------------------------------- THOMAS R. SHEPHERD /s/ Wendy L. Masler ------------------------------------- WENDY L. MASLER /s/ Andrew D. Flaster ------------------------------------- ANDREW D. FLASTER ROBERT SCHIFF LEE 1988 IRREVOCABLE TRUST By: /s/ Charles W. Robins ------------------------------------- Trustee /s/ Stephen Zachary Lee ------------------------------------- STEPHEN ZACHARY LEE /s/ Charles W. Robins ------------------------------------- CHARLES W. ROBINS AS CUSTODIAN FOR JESSE LEE 17 /s/ Charles W. Robins ------------------------------------- CHARLES W. ROBINS AS CUSTODIAN FOR NATHAN LEE /s/ Charles W. Robins ------------------------------------- CHARLES W. ROBINS /s/ James Westra ------------------------------------- JAMES WESTRA THL-CCI INVESTORS LIMITED PARTNERSHIP By: THL Investment Management Corp., its general partner By: ------------------------------------- Name: Title: /s/ Adam A. Abramson ------------------------------------- ADAM A. ABRAMSON /s/ Joanne M. Ramos ------------------------------------- JOANNE M. RAMOS /s/ P. Holden Spaht ------------------------------------- P. HOLDEN SPAHT /s/ Nancy M. Graham ------------------------------------- NANCY M. GRAHAM /s/ Gregory A. Ciongoli ------------------------------------- GREGORY A. CIONGOLI /s/ Wm. Matthew Kelly ------------------------------------- WM. MATTHEW KELLY 18 /s/ Kevin F. Sullivan ------------------------------------- KEVIN F. SULLIVAN /s/ Diane M. Barriere ------------------------------------- DIANE M. BARRIERE /s/ Kim H. Oakley ------------------------------------- KIM H. OAKLEY 19 EX-4.5 6 US LEC CORP. CERTIFICATE OF DESIGNATION US LEC CORP. CERTIFICATE OF DESIGNATION RELATING TO SERIES A CONVERTIBLE PREFERRED STOCK US LEC Corp., a Delaware corporation (the "Corporation"), acting pursuant to Section 151 of the General Corporation Law of the State of Delaware, does hereby submit the following Certificate of Designation relating to its Series A Convertible Preferred Stock. FIRST: The name of the Corporation is US LEC Corp. SECOND: By unanimous consent of the Board of Directors of the Corporation dated March 10, 2000, the following resolutions were duly adopted: WHEREAS, the Corporation's Restated Certificate of Incorporation, as amended, authorizes the issuance of Preferred Stock consisting of Ten Million (10,000,000) shares, par value $.01 per share, issuable from time to time in one or more series; and WHEREAS, the Board of Directors of the Corporation is authorized, subject to limitations prescribed by law and by the provisions of Article IV of the Corporation's Restated Certificate of Incorporation, to establish and fix the number of shares to be included in any series of Preferred Stock and the designation, rights, preferences, powers, restrictions and limitations of the shares of such series; and WHEREAS, it is the desire of the Board of Directors to establish and fix the number of shares to be included in a new series of Preferred Stock and the designation, rights, preferences and limitations of the shares of such new series; NOW, THEREFORE, BE IT RESOLVED, there is hereby created a series of the Preferred Stock of the Corporation designated as Series A Convertible Preferred Stock, par value $.01 per share (the "Series A Preferred Stock"), consisting of 364,406 shares (164,406 of which shall be available solely for the payment of preferential dividends pursuant to the following Section 1.1) and having the following voting powers, preferences, relative, participating, optional, conversion and other special rights, and qualifications, limitations and restrictions: 1. DIVIDENDS. 1.1 PREFERENTIAL DIVIDENDS. Preferential dividends on each share of Series A Preferred Stock shall be cumulative and accrue (whether or not there are profits or surplus available therefor) at the rate of 6% per annum on the Accrued Value thereof (computed on the basis of a 360-day year of twelve 30-day months) from the date of issuance of such share (or in the case of Series A Preferred Stock issued as dividends, from the Dividend Payment Date applicable to such dividend) until the earliest of (i) the date on which the Liquidation Value of such share of Series A Preferred Stock is paid to the holder thereof in connection with the liquidation of the Corporation, (ii) the date on which the Corporation redeems such share of Series A Preferred Stock, (iii) the date on which such share of Series A Preferred Stock is converted into shares of Class A Common Stock or (iv) the date on which such share of Series A Preferred Stock is otherwise acquired by the Corporation. All dividends on each share of Series A Preferred Stock shall accrue daily but be payable and compound quarterly in arrears on each Dividend Payment Date, commencing on the first Dividend Payment Date after the date of issuance of such share. During the period commencing on the Initial Issue Date and continuing through the twelfth Dividend Payment Date thereafter, all such dividends shall be paid by the Corporation through the issuance of additional shares of Series A Preferred Stock valued at the Stated Value and not in cash. Thereafter, all such dividends shall, at the option of the Corporation, be paid on any Dividend Payment Date through either (x) the issuance of additional shares of the Series A Preferred Stock valued at the Stated Value, or (y) the payment of cash legally available for payment thereof, whether or not such dividends have been declared; provided, however, that all dividends payable on the Series A Preferred Stock, Option Preferred Stock and Series C Preferred Stock on any given Dividend Payment Date must either all be paid in cash or all be paid in additional shares of the applicable series of preferred stock. If and when any shares of Series A Preferred Stock are issued under this Section 1.1 for the payment of dividends, such shares of Series A Preferred Stock shall be deemed to be validly issued and outstanding and fully paid and nonassessable. Each such dividend shall be payable to the holders of record of shares of the Series A Preferred Stock on the Dividend Payment Date, as they appear on the stock records of the Corporation at the close of business on such record dates. 1.2 PARTICIPATING DIVIDENDS. In addition to preferential dividends payable under Section 1.1, holders of Series A Preferred Stock shall share pro rata with holders of Common Stock, on the basis of the number of shares of Common Stock which each holder of Series A Preferred Stock would be entitled to receive upon conversion of the holder's Series A Preferred Stock into Common Stock as of the record date for the dividend or distribution in accordance with Section 4 (without giving effect to the one-year limitation on conversion), in all other dividends and distributions, if any, that the Corporation's board of directors may declare from time to time with respect to the Common Stock; provided, however, that the holders of Series A Preferred Stock shall not be entitled to participate in any stock dividend or distribution pursuant to this Section 1.2 if, as a result of such stock dividend or distribution, the Conversion Price is adjusted pursuant to Section 4.3. 2. LIQUIDATION. Upon any liquidation, dissolution or winding up of the Corporation (a "Liquidation"), each holder of Series A Preferred Stock shall be entitled to be paid in preference to any distribution to holders of Junior Securities, but in parity to any distribution to holders of Parity Securities, an amount in cash (the "Liquidation Distribution") equal to the greater of (i) the product obtained by multiplying the Liquidation Value of each share by the number of shares of Series A Preferred Stock held by the holder or (ii) the amount that would be payable to the holder in respect of the Common Stock issuable upon conversion of the holder's shares of Series A Preferred Stock if all outstanding shares of Series A Preferred Stock were converted into Common Stock immediately prior to the Liquidation in accordance with Section 4 (without giving effect to the one-year limitation on conversion). If, upon a Liquidation, the Corporation's assets available for distribution to its stockholders are insufficient to permit payment to holders of Series A Preferred Stock and Parity Securities of the aggregate Liquidation Value of their Series A Preferred Stock or the aggregate liquidation value of their Parity Securities, as applicable, then the entire assets available for distribution shall be distributed among holders of Series A Preferred Stock and Parity Securities pro rata on the basis of the aggregate Liquidation Value of the Series A Preferred Stock or the aggregate liquidation value of the Parity Securities, as applicable, held by each holder before any payment is made to holders of Junior Securities. After payment in full has been made to holders of Series A Preferred Stock and Parity Securities of the aggregate Liquidation Distributions in respect of their Series A Preferred Stock or the aggregate liquidation distribution in respect of the Parity Securities, as applicable, any other series or class or classes of Junior Securities shall be entitled to receive any and all assets remaining to be paid or distributed to holders of capital stock of the Corporation, and holders of Series A Preferred Stock and Parity Securities shall not share in any remaining assets of the Corporation available for distribution. The Corporation shall mail written notice of a Liquidation to each holder of record of Series A Preferred Stock at least 30 days prior to the date for payment or distribution to stockholders stated in the Corporation's notice. Solely for the purposes of this Section 2, neither the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Corporation nor the consolidation or merger of the Corporation with or into one or more other entities shall be deemed to be a Liquidation. 2 3. VOTING RIGHTS. 3.1 ORDINARY VOTING. Except as otherwise required by law, the Corporation's Restated Certificate of Incorporation or this Certificate of Designation, holders of Series A Preferred Stock shall be entitled to vote with holders of Common Stock, Option Preferred Stock and Series C Preferred Stock as a single class on each matter submitted to a vote of the Corporation's stockholders. Each share of Series A Preferred Stock shall have a number of votes equal to the number of votes possessed by the number of shares of Class A Common Stock into which the share of Series A Preferred Stock is convertible (without giving effect to the one-year limitation on conversion) as of the record date for determining the stockholders entitled to vote on the matter. Any fractional voting rights that result (after aggregating, in the case of each holder of Series A Preferred Stock, all shares of Class A Common Stock into which all of the holders' shares of Series A Preferred Stock could be converted) shall be rounded upwards or downwards to the nearest whole number (with one-half being rounded upwards). 3.2 ELECTION OF PREFERRED STOCK DIRECTORS. So long as Permitted Owners hold at least 30% of the Underlying Common Stock, holders of Purchaser Preferred Stock, voting separately as a single class to the exclusion of all other classes of the Corporation's capital stock and with each share of Purchaser Preferred Stock entitled to one vote, shall be entitled, in the election of directors of the Corporation, to elect two directors to serve on the Corporation's board of directors. Such directors shall comprise a third class of directors and be referred to as "Preferred Stock Directors." Each Preferred Stock Director so elected shall serve until his successor is duly elected by holders of Purchaser Preferred Stock or he is removed from office by holders of Purchaser Preferred Stock. If holders of Purchaser Preferred Stock for any reason fail to elect anyone to fill any such directorship, the position shall remain vacant until such time as holders of Purchaser Preferred Stock elect a Preferred Stock Director to fill the position, and it shall not be filled by resolution or vote of the Corporation's board of directors or its other stockholders. In the event that Permitted Owners cease to hold at least 30% of the Underlying Common Stock but continue to hold at least 20% of the Underlying Common Stock, the right and power provided to holders of Purchaser Preferred Stock by this Section 3.2 shall be limited to the election of only one Preferred Stock Director. In the event that Permitted Owners cease to hold at least 20% of the Underlying Common Stock, the right and power provided to holders of Purchaser Preferred Stock by this Section 3.2 shall terminate. 3 3.3 INITIAL TERM OF PREFERRED STOCK DIRECTORS. Each initial Preferred Stock Director shall be appointed by the Board of Directors to serve until the Corporation's annual meeting of stockholders in 2001 or until his resignation, removal or death, or until his successor has been duly elected by holders of Purchaser Preferred Stock. Thereafter, each Preferred Stock Director shall be elected in accordance with Section 3.2 either (a) by written consent of the holders of at least a majority of the outstanding shares of Purchaser Preferred Stock or (b) at the annual meeting of stockholders. 4. CONVERSION. 4.1 CONVERSION PROCEDURE. (a) At any time and from time to time beginning on the first anniversary of the Initial Issue Date, a holder of Series A Preferred Stock may convert all or any portion of the holder's shares of Series A Preferred Stock (including any fraction of a share) into a number of shares of Class A Common Stock computed by dividing (i) the aggregate Liquidation Value of the shares of Series A Preferred Stock to be converted by (ii) the Conversion Price then in effect; provided, however, that a holder of Series A Preferred Stock shall have the right to convert all or any portion of the holder's shares of Series A Preferred Stock as set forth above in the event of the occurrence of (i) an Acquisition Event or (ii) a Change of Control, in either case prior to the date of the first anniversary of the Initial Issue Date. (b) Each conversion of Series A Preferred Stock shall be deemed to have been effected as of the close of business on the date on which the certificate or certificates representing the Series A Preferred Stock to be converted have been surrendered for conversion at the Corporation's principal office. When the conversion has been effected, the rights of the converting holder of Series A Preferred Stock as such holder shall cease, and the Person or Persons in whose name or names any certificate or certificates for shares of Class A Common Stock are to be issued upon the conversion shall be deemed to have become the holder or holders of record of the shares of Class A Common Stock represented thereby. (c) As soon as possible but in any event within 10 Business Days after a conversion has been effected, the Corporation shall deliver to the converting holder: (i) a certificate or certificates representing the number of shares of Class A Common Stock issuable by reason of the conversion in such name or names and such denomination or denominations as the converting holder has specified; and (ii) a certificate representing any shares of Series A Preferred Stock which were represented by the certificate or certificates delivered to the Corporation in connection with the conversion but which were not converted. 4 (d) The issuance of a certificate or certificates for shares of Class A Common Stock upon the conversion of Series A Preferred Stock shall be made without charge to the converting holder for any issuance tax in respect of the conversion or other cost incurred by the Corporation in connection with the conversion and the related issuance of shares of Class A Common Stock. Upon conversion of each share of Series A Preferred Stock, the Corporation shall take all actions that may be necessary in order to ensure that the Class A Common Stock issued as a result of the conversion is validly issued, fully paid and nonassessable. (e) The Corporation shall not close its books against the transfer of Series A Preferred Stock or of Class A Common Stock issued or issuable upon conversion of Series A Preferred Stock in any manner which interferes with the timely conversion of Series A Preferred Stock. (f) If any fractional interest in a share of Class A Common Stock would, except for the provisions of this Section 4.1(f), be issuable upon any conversion of Series A Preferred Stock, the Corporation, in lieu of issuing the fractional share otherwise issuable, may pay an amount in cash to the holder of the fractional interest equal to the Market Price of the fractional interest as of the date of conversion. (g) Notwithstanding any other provision of this Section 4, if a conversion of Series A Preferred Stock is to be made in connection with a Corporate Change, an Acquisition Event or a Change of Control or any other similar transaction affecting the Corporation and its capital stock, the conversion may be conditioned, at the election of the converting holder, upon the consummation of the Corporate Change, Acquisition Event or Change of Control or other such similar transaction affecting the Corporation and its capital stock, in which event the conversion shall not be deemed to be effective until the Corporate Change, Acquisition Event or Change of Control or other such similar transaction affecting the Corporation and its capital stock has been consummated. 4.2 CONVERSION PRICE. The initial conversion price for Series A Preferred Stock (the "Conversion Price") shall be $35. In order to prevent dilution of the conversion rights granted under Section 4.1, the initial Conversion Price for Series A Preferred Stock shall be subject to adjustment from time to time pursuant to Sections 4.3, 4.4, 4.5 and 4.6. 4.3 COMMON STOCK SUBDIVISION OR COMBINATION. If the Corporation at any time subdivides (by a stock split, stock dividend, recapitalization or otherwise) its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to the subdivision shall be proportionately reduced; and if the Corporation at any time combines (by reverse stock split or otherwise) its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to the combination shall be proportionately increased. Any adjustment of the Conversion Price under this Section 4.3 shall become effective as and when the subdivision or combination becomes effective. 5 4.4 CORPORATE CHANGE. Prior to the consummation of any Corporate Change, the Corporation shall make appropriate provisions (in form and substance reasonably satisfactory to holders of a majority of the shares of Series A Preferred Stock then outstanding) to ensure that each holder of Series A Preferred Stock shall have the right to receive upon conversion of the holder's Series A Preferred Stock, in lieu of the shares of Class A Common Stock that the holder otherwise would have been entitled to receive upon conversion, the stock, securities or assets that the holder would have received in connection with the Corporate Change if the holder had converted the holder's Series A Preferred Stock immediately prior to the Corporate Change. The Corporation shall also make appropriate provisions (in form and substance reasonably satisfactory to holders of a majority of the shares of Series A Preferred Stock then outstanding) to ensure that the provisions of this Section 4 and Section 5 will continue to be applicable to the Series A Preferred Stock (including, in the case of any Corporate Change in which the successor or purchasing corporation is other than the Corporation, an immediate adjustment of the Conversion Price to the value of the Common Stock reflected by the terms of the Corporate Change, if the value so reflected is less than the Conversion Price in effect immediately prior to the Corporate Change). The Corporation shall not effect any Corporate Change unless, prior to the consummation of the Corporate Change, the successor corporation (if other than the Corporation) or the purchasing corporation assumes by written instrument (in form and substance reasonably satisfactory to holders of a majority of the shares of Series A Preferred Stock then outstanding) the obligation to deliver to each holder of Series A Preferred Stock such shares of stock, securities or assets that the holder is entitled to receive in accordance with this Section 4.4. 4.5 WEIGHTED AVERAGE ANTI-DILUTION PROTECTION. If, on or after the Initial Issue Date, the Corporation issues or sells, or in accordance with Section 4.6 is deemed to have issued or sold, any shares of Common Stock for a consideration per share less than the Conversion Price in effect immediately prior to the time of such issue or sale, then immediately upon such issuance or sale the Conversion Price shall be reduced to the Conversion Price determined by dividing (i) the sum of (x) the product derived by multiplying the Conversion Price in effect immediately prior to such issue or sale by the number of shares of Common Stock Deemed Outstanding immediately prior to such issue or sale plus (y) the consideration, if any, received by the Corporation upon such issue or sale, by (ii) the number of shares of Common Stock Deemed Outstanding immediately after such issue or sale. Notwithstanding the foregoing and Section 4.6, there shall be no adjustment in the Conversion Price as a result of: (a) the issuance of shares of Common Stock upon the exercise of Options outstanding as of the date of filing this Certificate of Designation (including any repricing of such options so long as such options are not repriced to an exercise price per share that is less than the Market Price on the date of repricing); and 6 (b) by reason of any one or combination of the following: (i) the grant or repricing of Options which are authorized to be granted or repriced under the Corporation's existing stock option plan as of the date of filing this Certificate of Designation, as such plan may be amended, replaced and supplemented, and which are granted or repriced after the date of filing this Certificate of Designation at an exercise price not less than the Market Price on the date of grant or repricing, and the issuance of Common Stock pursuant to the exercise of such Options; (ii) the grant or repricing of Options which are authorized to be granted or repriced under any new stock option or other stock-based employee incentive plan which is adopted by the Corporation and approved by its stockholders after the date of filing this Certificate of Designation and which are granted or repriced at an exercise price not less than the Market Price on the date of grant or repricing, and the issuance of Common Stock pursuant to the exercise of such Options; and (iii) the issuance and sale of Common Stock at a price per share that is less than the Market Price pursuant to any employee stock purchase plan adopted by the Corporation that satisfies the requirements of Section 423 of the Code and is approved by the Corporation's stockholders after the date of filing this Certificate of Designation; provided, however, that the foregoing exceptions to the anti-dilution provisions of this Section 4.5 shall not apply to Options or shares granted, repriced or issued pursuant to clauses (b)(i), (ii) or (iii) or to Options repriced pursuant to clause (a) at a price less than the then applicable Conversion Price to the extent that all such Options and shares represent in the aggregate in any calendar year more than two percent (2%) of the number of shares of Common Stock of the Company outstanding (on a fully diluted basis) on the last day of December of the previous calendar year (as adjusted for events occurring pursuant to Section 4.3 after the last day of the previous calendar year); (c) the issuance of shares of Class A Common Stock upon conversion or exercise of the Series A Preferred Stock, or the adjustment of the Conversion Price related to the Series A Preferred Stock; (d) the issuance of shares of Series A Preferred Stock; 7 (e) the issuance of shares of Option Preferred Stock pursuant to the terms of the Option Agreement; (f) the issuance of Class A Common Stock upon conversion of the shares of Option Preferred Stock issued pursuant to the terms of the Option Agreement, or the adjustment of the conversion price related thereto in accordance with the terms of the Option Stock Designation as in effect on the first date of issuance of Option Preferred Stock; (g) the issuance of shares of Series C Preferred Stock; (h) the issuance of Class A Common Stock upon conversion of the Series C Preferred Stock or the adjustment of the conversion price related thereto in accordance with the terms of the Series C Designation as in effect on the first date of issuance of Series C Preferred Stock; (i) the issuance of Class A Common Stock as a result of the conversion of Class B Common Stock to Class A Common Stock; and (j) any other events with respect to which holders of a majority of the outstanding shares of Series A Preferred Stock waive their rights under this Section 4.5. 4.6 EFFECT ON CONVERSION PRICE OF CERTAIN EVENTS. For purposes of determining the adjusted Conversion Price under Section 4.5, the following shall be applicable: (a) If the Corporation in any manner grants or sells any Options and the price per share for which Common Stock is issuable upon the exercise of such Options, or upon conversion or exchange of any Convertible Securities issuable upon exercise of such Options, is less than the Conversion Price in effect immediately prior to the time of the granting or sale of such Options, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to be outstanding and to have been issued and sold by the Corporation at the time of the granting or sale of such Options for such price per share. For purposes of this paragraph the "price per share for which Common Stock is issuable" shall be determined by dividing (A) the total amount, if any, received or receivable by the Corporation as consideration for the granting or sale of such Options, plus the minimum aggregate amount of additional consideration payable to the Corporation upon exercise of all such Options, plus in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the issuance or sale of such Convertible Securities and the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options. No further adjustment of the Conversion Price shall be made when Convertible Securities are actually issued upon the exercise of such Options or when Common Stock is actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities. 8 (b) If the Corporation in any manner issues or sells any Convertible Securities and the price per share for which Common Stock is issuable upon conversion or exchange thereof is less than the Conversion Price in effect immediately prior to the time of such issue or sale, then the maximum number of shares of Common Stock issuable upon conversion or exchange of such Convertible Securities shall be deemed to be outstanding and to have been issued and sold by the Corporation at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this paragraph, the "price per share for which Common Stock is issuable" shall be determined by dividing (A) the total amount received or receivable by the Corporation as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment of the Conversion Price shall be made when Common Stock is actually issued upon the conversion or exchange of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustments of the Conversion Price had been or are to be made pursuant to other provisions of this Section 4.6(b), no further adjustment of the Conversion Price shall be made by reason of such issue or sale. (c) If the purchase price provided for in any Options, the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities or the rate at which any Convertible Securities are convertible into or exchangeable for Common Stock changes at any time, a corresponding number of shares of Common Stock shall be deemed to have been issued and the Conversion Price in effect at the time of such change shall be immediately adjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold. If such adjustment would result in an increase of the Conversion Price then in effect, however, such adjustment shall not be effective until 30 days after written notice thereof has been given by the Corporation to all holders of Series A Preferred Stock. For purposes of this Section 4.6(c), if the terms of any Option or Convertible Security which was outstanding as of the date of filing of this Certificate of Designation are changed in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change; but no such change shall at any time cause the Conversion Price hereunder to be increased. (d) Upon the termination or expiration of any Option or the termination of any right to convert or exchange any Convertible Security without the exercise of any such Option or right, the Conversion Price then in effect hereunder shall be adjusted immediately to the Conversion Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Security, to the extent outstanding immediately prior to such expiration or termination, never been issued. If such expiration or termination would result in an increase in the Conversion Price then in effect, however, such increase shall not be effective until 30 days after written notice thereof has been given to all holders of Series A Preferred Stock. For purposes of this Section 4.6(d), the expiration or termination of any Option or Convertible Security which was outstanding as of the date of filing of this Certificate of Designation shall not cause the Conversion Price hereunder to be adjusted unless, and only to the extent that, a change in the terms of such Option or Convertible Security caused it to be deemed to have been issued after the Initial Issue Date. 9 (e) If any Common Stock, Option or Convertible Security is issued or sold or deemed to have been issued or sold for cash, the Consideration received therefor shall be deemed to be the amount received by the Corporation therefor (net of discounts, commissions and related expenses). If any Common Stock, Option or Convertible Security is issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Corporation shall be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Corporation shall be the Market Price thereof as of the date of receipt. If any Common Stock, Option or Convertible Security is issued to the owners of the non-surviving entity in connection with any merger in which the Corporation is the surviving corporation, the amount of consideration therefor shall be deemed to be the fair value of such portion of the net assets and business or then on-surviving entity as is attributable to such Common Stock, Option or Convertible Security, as the case may be. The fair value of any consideration other than cash and securities shall be determined jointly by the Corporation and the holders of a majority of the outstanding shares of Series A Preferred Stock. If such parties are unable to reach agreement within a reasonable period of time, the fair value of such consideration shall be determined by an independent appraiser experienced in valuing such type of consideration jointly selected by the Corporation and the holders of a majority of the outstanding shares of Series A Preferred Stock. The determination of such appraiser shall be final and binding upon the parties, and the fees and expenses of such appraiser shall be borne by the Corporation. (f) The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Corporation or any Subsidiary, but the disposition of any shares of Common Stock so owned or held shall be considered an issue or sale of Common Stock. (g) If the Corporation takes a record of the holders of Common Stock for the purpose of entitling them (i) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (ii) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or upon the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. 10 (h) In case any Option is issued in connection with the issue or sale of other securities of the Corporation, together comprising one integrated transaction in which no specific consideration is allocated to such Option by the parties thereto, the Option shall be deemed to have been issued for a consideration of $.01. (i) Upon the occurrence of an Event of Default described in Section 3.4 (b) or (c) of the Corporate Governance Agreement, the Conversion Price then in effect shall automatically be decreased by 10%. 4.7 NOTICES OF ADJUSTMENT. Within 10 Business Days of any adjustment of the Conversion Price, the Corporation shall give written notice of the adjustment to all holders of Series A Preferred Stock. 5. REDEMPTIONS. 5.1 MANDATORY REDEMPTION; REDEMPTION AT HOLDER'S OPTION. (a) On April 11, 2010, the Corporation shall redeem all of the issued and outstanding shares of the Series A Preferred Stock at a redemption price equal to the aggregate Liquidation Value of the shares to be redeemed. The Corporation shall give written notice of the redemption to all holders of Series A Preferred Stock not more than 90 nor less than 10 days prior to the date the redemption is to be made. Redemptions under this Section 5.1(a) shall be subject to the terms of the Corporation's outstanding indebtedness, and the Corporation shall have no obligation to redeem any shares of Series A Preferred Stock in violation of the terms of its outstanding funded indebtedness. (b) At any time on or after the occurrence of a Change of Control and for a period of 60 days thereafter, each holder of Series A Preferred Stock shall have the right to require the Corporation to redeem all or a portion of the holder's Series A Preferred Stock at a redemption price equal to 101% of the aggregate Liquidation Value (the "Change of Control Amount") of the shares to be redeemed. Any holder of Series A Preferred Stock may exercise the holder's redemption right under this Section 5.1(b) by delivering to the Corporation at its principal office a written notice stating the holder's intention to exercise the holder's redemption right and the number of the holder's shares of Series A Preferred Stock to be redeemed. The Corporation shall be obligated to redeem the total number of shares of Series A Preferred Stock specified in the holder's redemption notice on the 30th Business Day following its receipt of the holder's notice (the "Change of Control Payment Date"). Redemptions under this Section 5.1(b) shall be subject to the terms of the Corporation's outstanding indebtedness, and the Corporation shall have no obligation to redeem any shares of Series A Preferred Stock in violation of the terms of its outstanding funded indebtedness. 11 (c) The Corporation covenants that, if any of its outstanding funded indebtedness prohibits a redemption pursuant to Section 5.1(a) or (b) and is prepayable, the Corporation will make commercially reasonable efforts to prepay any such indebtedness so that the foregoing redemptions can be made. The Corporation further covenants that it will make commercially reasonable efforts to include in the terms of any of its funded indebtedness a provision to the effect that, if the holders thereof do not require or waive a required prepayment or redemption upon a Change of Control, the redemption required by Section 5.1(b) shall not be prohibited. (d) If the Corporation is unable for any reason to make the full amount of redemption pursuant to Sections 5.1(a), including as a result of Section 5.3, the Corporation shall immediately take a Board Action and the Conversion Price in effect on the date on which such redemption was required to be made shall be reduced to the lower of (i) 50% of the Conversion Price as of such date and (ii) the Market Price as of such date. (e) If the holders of all of the issued and outstanding shares of the Series A Preferred Stock notify the Corporation of their intent to exercise their redemption rights pursuant to Section 5.1(b) and the Corporation is unable for any reason to redeem all of such shares, including as a result of Section 5.3, the Corporation shall immediately take a Board Action and the Conversion Price in effect on the date on which such redemption was required to be made shall be reduced to the lower of (i) 50% of the Conversion Price as of such date and (ii) the Market Price as of such date. 5.2 REDEMPTION AT CORPORATION'S OPTION. (a) At any time on or after April 11, 2003, the Corporation shall have the right to redeem all (but not less than all) of the outstanding shares of Series A Preferred Stock at a redemption price equal to the aggregate Liquidation Value of the shares to be redeemed, upon written notice of the proposed redemption to all holders of Series A Preferred Stock given at least 30 days prior to the proposed redemption date, if the Market Price of a share of Common Stock for 30 consecutive trading days during the 90-day period immediately preceding the date of the Corporation's redemption notice is at least 150% of the Conversion Price then in effect (without giving effect to any change in Conversion Price pursuant to Section 4.6(i), 5.1(d) or 5.1(e)); provided, however, that the Corporation may not exercise its redemption rights under this Section 5.2(a) unless the Market Price of a share of Common Stock on the redemption date also is at least 150% of the Conversion Price then in effect (without giving effect to any change in the Conversion Price pursuant to Section 4.6(i), 5.1(d) or 5.1(e)). The Corporation's exercise of its redemption rights under this Section 5.2(a) shall be subject to the conversion rights under Section 4 of each holder of Series A Preferred Stock, who may exercise those rights at any time prior to the redemption date. 12 (b) Upon the occurrence of a Covenant Triggering Event, the Corporation shall have the right to redeem all (but no less than all) of the outstanding shares of Series A Preferred Stock at a redemption price equal to (i) 135% of the aggregate Liquidation Value of the shares to be redeemed if such redemption occurs on or prior to the first anniversary of the Initial Issue Date or (ii) an internal rate of return from the Initial Issue Date of 20% per annum compounded quarterly on the Stated Value of the Series A Preferred Stock (other than shares of Series A Preferred Stock issued as dividends in accordance with Section 1.1) (as determined in accordance with standard financial practice by the Corporation's independent auditors whose determination shall be, in the absence of demonstrable error, final) to each holder of Series A Preferred Stock if such redemption occurs after the first anniversary of the Initial Issue Date, upon written notice of the proposed redemption to all holders of Series A Preferred Stock given at least 30 days prior to the proposed redemption date; provided, however, that the Corporation may not exercise its redemption rights under this Section 5.2(b) unless it also redeems all (but not less than all) of the outstanding shares of Option Preferred Stock pursuant to the terms of Section 5.2(b) of the Option Stock Designation. The Corporation's exercise of its redemption rights under this Section 5.2(b) shall be subject to the conversion rights under Section 4 of each holder of Series A Preferred Stock, who may exercise those rights at any time prior to the redemption date. 5.3 PAYMENT OF REDEMPTION PRICE. For each share of Series A Preferred Stock which is to be redeemed pursuant to Sections 5.1 or 5.2, the Corporation shall be obligated on the redemption date to pay to the holder, upon the holder's surrender at the Corporation's principal office of the certificate representing the share to be redeemed, the full redemption price of the share in immediately available funds. In the case of a redemption pursuant to Section 5.1(a), if the funds of the Corporation legally available for the redemption of Series A Preferred Stock and Series C Preferred Stock on the redemption date are insufficient to redeem the total number of shares of Series A Preferred Stock and Series C Preferred Stock that the Corporation is required to redeem (pursuant to Section 5.1(a) hereof and Section 5.1 of the Series C Designation), those funds which are legally available shall be used to redeem the maximum possible number of shares of Series A Preferred Stock and Series C Preferred Stock pro rata among the holders of the shares to be redeemed on the basis of the number of shares held by each holder. As and when following the redemption date additional funds of the Corporation become legally available for the redemption of Series A Preferred Stock and Series C Preferred Stock, the Corporation shall immediately use such funds to redeem the balance of the shares of Series A Preferred Stock and Series C Preferred Stock which the Corporation became obligated to redeem on the redemption date but which it has not redeemed. In the case of a redemption pursuant to Section 5.1(b), if the funds of the Corporation legally available for the redemption of Purchaser Preferred Stock on the redemption date are insufficient to redeem the total number of shares of Purchaser Preferred Stock that the Corporation is required to redeem (pursuant to Section 5.1(b) hereof and Section 5.1(b) of the Option Stock Designation), those funds which are legally available shall be used to redeem the maximum possible number of shares of Purchaser Preferred Stock pro rata among the holders of the shares to be redeemed on the basis of the number of shares held by each holder. As and when following the redemption date additional funds of the Corporation become available for the redemption of the Purchaser Preferred Stock, the Corporation shall immediately use such funds to redeem the balance of the shares of Purchaser Preferred Stock which the Corporation became obligated to redeem on the redemption date but which it has not redeemed. In the case of a redemption pursuant to Section 5.2(a), the Corporation may not redeem any shares of Series A Preferred Stock unless the funds of the Corporation legally available for the redemption of Series A Preferred Stock are sufficient to redeem the total number of the outstanding shares of Series A Preferred Stock. In the case of a redemption pursuant to Section 5.2(b), the Corporation may not redeem any shares of Series A Preferred Stock unless the funds of the Corporation legally available for the redemption of Purchaser Preferred Stock pursuant to Section 5.2(b) hereof and Section 5.2(b) of the Option Stock Designation are sufficient to redeem the total number of outstanding shares of Purchaser Preferred Stock. 13 5.4 REISSUANCE OF CERTIFICATES. In the event that fewer than the total number of shares of Series A Preferred Stock represented by any certificate are redeemed upon a redemption pursuant to Section 5.1, the Corporation shall issue a new certificate representing the number of unredeemed shares of Series A Preferred Stock to the holder of those shares without cost to the holder promptly after the holder's surrender of the certificate representing the redeemed shares of Series A Preferred Stock. 5.5 REDEEMED SHARES. Any shares of Series A Preferred Stock which are redeemed by the Corporation shall be canceled and shall not be reissued, sold or transferred. 6. RESTRICTIONS AND LIMITATIONS. As long as any of the initial number of shares of Series A Preferred Stock remain outstanding, the Corporation shall not, directly or indirectly, including directly or indirectly through a subsidiary, take any of the following actions without the affirmative vote or written consent of holders of a majority of the shares of Series A Preferred Stock then outstanding: (a) file any other certificate of designation or amend or restate this Certificate of Designation or the Corporation's Restated Certificate of Incorporation or by-laws (as each of them may be amended in compliance with this Section 6) in any manner that adversely affects the powers, preferences and rights of Series A Preferred Stock as designated in this Certificate of Designation (as it may be amended in compliance with this Section 6) (other than the filing of the Option Stock Designation and the Series C Designation); (b) authorize or issue additional Senior Securities or Parity Securities (other than (x) Option Preferred Stock authorized and issued pursuant to the Option Stock Designation, (y) Series C Preferred Stock authorized and issued pursuant to the Series C Designation, and (z) issuances of Series A Preferred Stock in accordance with Section 1); (c) issue (i) any convertible or redeemable stock or securities other than those that would, in the written opinion of counsel to the Corporation in form and substance reasonably satisfactory to the holders of a majority of the outstanding Series A Preferred Stock, be treated as common stock for federal income tax purposes, or (ii) any convertible debt securities; (d) declare or pay any dividends on or declare or make any other direct or indirect distribution on account of any Junior Securities, or set apart any sum for any such purpose (other than pursuant to Common Stock subdivisions or combinations as described in Section 4.3); 14 (e) redeem, purchase or otherwise acquire for value any shares of its capital stock unless any such redemption, purchase or other acquisition would not, in the written opinion of counsel to the Corporation in form and substance reasonably satisfactory to the holders of a majority of the outstanding Series A Preferred Stock, be treated as the receipt of cash or property by stockholders for purposes of Section 305(b)(2) of the Code (other than (x) Series A Preferred Stock redeemed pursuant to Section 5, (y) shares of Option Preferred Stock issued pursuant to the Option Agreement and redeemed in accordance with Section 5 of the Option Stock Designation as in effect on the date of initial issuance of the Option Preferred Stock and (z) shares of Series C Preferred Stock redeemed in accordance with Section 5 of the Series C Designation as in effect on the date of initial issuance of the Series C Preferred Stock); or (f) redeem, purchase or otherwise acquire for value any shares of Series A Preferred Stock, except in accordance with Section 5. 7. REGISTRATION AND TRANSFER. (a) The Corporation shall keep at its principal office a register for the registration of Series A Preferred Stock. The Corporation may deem and treat the registered holder(s) of the Series A Preferred Stock as the absolute owner(s) thereof (notwithstanding any notation of ownership or other writing on the Series A Preferred Stock certificates made by any Person) for the purpose of any conversion thereof or any payment or distribution to the holder(s) thereof, and for all other purposes, and the Corporation shall not be affected by any notice to the contrary other than pursuant to Section 7(b). For the purpose of this Agreement, all references to a holder herein shall refer to a registered holder of Series A Preferred Stock. (b) Upon the surrender of any certificate representing Series A Preferred Stock at the Corporation's principal office, the Corporation shall, at the request of the record holder of the certificate, execute and deliver (at the Corporation's expense) a new certificate or certificates in exchange representing in the aggregate the number of shares of Series A Preferred Stock represented by the surrendered certificate. Each new certificate shall be registered in the name and represent the number of shares of Series A Preferred Stock requested by the holder of the surrendered certificate and shall be substantially identical in form to the surrendered certificate. Any transfer of Series A Preferred Stock shall be subject, however, to any applicable contractual or other restrictions on transfer and the payment of any applicable transfer taxes by the transferring holder. 8. REPLACEMENT. Upon receipt of evidence reasonably satisfactory to the Corporation (e.g., an affidavit of the registered holder) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing shares of Series A Preferred Stock, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Corporation, or, in the case of any such mutilation, upon surrender of the mutilated certificate, the Corporation shall (at its expense) execute and deliver in replacement a new certificate of like kind representing the number of shares of Series A Preferred Stock represented by the lost, stolen, destroyed or mutilated certificate and dated the date of the lost, stolen, destroyed or mutilated certificate. 15 9. AMENDMENT AND WAIVER. No amendment, modification or waiver will be binding or effective with respect to any provision of this Certificate of Designation without the prior written consent of holders of not less than a majority of the shares of Series A Preferred Stock outstanding at the time that the action is taken. No change in the terms of this Certificate of Designation may be accomplished by merger or consolidation of the Corporation with another corporation unless the Corporation has obtained the prior affirmative vote or written consent of holders of not less than a majority of the shares of Series A Preferred Stock then outstanding. 10. NOTICES. The Corporation shall give written notice to all holders of Series A Preferred Stock at least 20 days prior to the date on which the Corporation (a) closes its books or takes a record (i) with respect to the payment of any dividend or distribution to stockholders, (ii) with respect to any pro rata subscription offer to holders of Common Stock or (iii) for determining rights to vote with respect to any Liquidation or Corporate Change or (b) if no notice is given pursuant to clause (a), consummates a transaction constituting a Corporate Change. In addition, the Corporation shall give the notices required by Sections 2 and 4.7 and shall also give written notice to all holders of Series A Preferred Stock at least ten Business Days prior to any Acquisition Event or Change of Control. All notices, requests, claims, demands and other communications ("Notices") under this Certificate of Designation shall be in writing and sent by certified or registered mail, return receipt requested, a recognized overnight courier service, telecopier or personal delivery, as follows: (a) if to Corporation, to: US LEC Corp. Transamerica Square 401 N. Tryon Street, Suite 1000 Charlotte, North Carolina 28202 Attention: General Counsel Telecopier: (704) 319-3098 16 with a required copy to: Moore & Van Allen, PLLC 100 North Tryon Street, Floor 47 Charlotte, North Carolina 28202-4003 Attention: Barney Stewart III Telecopier: (704) 331-1151 (b) if to any holder of Series A Preferred Stock (unless the holder has otherwise indicated in writing), in care of: Bain Capital, Inc. Two Copley Place Boston, Massachusetts 02116 Attention: Ian K. Loring Telecopier: (617) 572-3274 and Thomas H. Lee Partners, L.P. 75 State Street, 26th Floor Boston, Massachusetts 02109 Attention: Anthony J. DiNovi Telecopier: (617) 227-3514 with a required copy to: Ropes & Gray One International Plaza Boston, Massachusetts 02110-2624 Attention: Philip J. Smith Telecopier: (617) 951-7050 All Notices shall be deemed to have been duly given: when delivered by hand, if personally delivered; when delivered by courier, if delivered by commercial overnight courier service; five Business Days after being deposited in the mail, postage prepaid, if mailed; and when receipt is acknowledged by the individual to whom the telecopy is sent, if telecopied. A party may change its address for purposes of this Agreement by Notice in accordance with this Section 10.2. 17 11. DEFINITIONS. "ACCRUED VALUE" means, with respect to a share of Series A Preferred Stock, the sum of (as adjusted for stock splits, stock combinations, recapitalizations and similar events with respect to Series A Preferred Stock) (i) $1,000, plus (ii) any dividends that have accrued on any Dividend Payment Date and that have not been paid. "ACQUISITION EVENT" means (i) the Corporation has consolidated with, or merged with or into, any other Person and, in connection with any such consolidation or merger, the holders of the Common Stock outstanding immediately prior to such transaction do not own, in the aggregate, at least 50% of the outstanding stock of the surviving entity in such transaction, or (ii) any Person has made a tender offer or exchange offer to acquire any of the Common Stock (each such offer, a "Tender Offer"), and, upon the consummation of the Tender Offer, the holders of the Common Stock outstanding immediately prior thereto do not own, in the aggregate, at least 50% of the outstanding stock of the Person that made the Tender Offer. "AFFILIATE" means, with respect to a Person, (a) any director, executive officer, general partner, managing member or other manager of such Person, (b) any other Person (other than a Subsidiary) which directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person and (c) if such Person is an individual, any member of the immediate family (including parents, spouse and children) of such individual, any trust whose principal beneficiary is such individual or one or more members of such individual's immediate family and any Person who is controlled by any such member or trust. The term "control" means (i) the power to vote 25% or more of the securities or other equity interests of a Person having ordinary voting power (on a fully diluted basis), or (ii) the possession, directly or indirectly, of any other power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise. "BOARD ACTION" means (i) such action by the Corporation as is necessary to cause the majority of the members of the Board (including any directors elected pursuant to Section 3.2 hereof) to be persons designated by the Permitted Owners of the Underlying Common Stock, including causing existing members of the Board to resign and filling the vacancies created with such designees or increasing the size of the Board and filling the vacancies created with such designees or (ii) calling a special meeting of the Corporation's stockholders for the purpose of electing such designees to fill such vacancies if they are not filled as provided in clause (i). The action required by the Corporation hereunder shall be taken as soon as practicable and shall include, if required, adoption by the Board of any necessary amendments to the Bylaws, the preparation and submission to the Corporation's stockholders of a proxy statement in connection with any special stockholders' meeting and the filing of any required reports with the United States Securities and Exchange Commission and The Nasdaq Stock Market. "BUSINESS DAY" means any day other than a Saturday, Sunday or other day on which commercial banks in New York City, New York or Charlotte, North Carolina are authorized or required by law or executive order to close. 18 "CHANGE OF BOARD" means an occurrence whereupon, at any time, fewer than one-half of the directors comprising the board of directors of the Corporation shall include members of a group consisting of any existing Board members as the date of filing this Certificate of Designation with the Secretary of State of Delaware, and replacement or additional directors nominated or supported by one-half or more of the members of the foregoing group and any such replacement or additional directors; provided, however, that, in the event the Permitted Owners exercise their rights under Section 3.4 of the Corporate Governance Agreement, such exercise shall not constitute a "Change of Board." "CHANGE OF CONTROL" means (i) the failure of Richard T. Aab ("Aab") and Tansukh V. Ganatra ("Ganatra"), in the aggregate, to own or control, directly or indirectly, stock of the Corporation representing at least 50% of the total number of shares of voting capital stock of the Corporation (as adjusted for the events described in Section 4.3) that they, in the aggregate, own or control, directly or indirectly, as of the Initial Issue Date, (ii) the failure of Aab and Ganatra, in the aggregate, to own or control, directly or indirectly, more shares of the voting capital stock of the Corporation than any other Person or group (other than a Permitted Owner or group of the Permitted Owners and their Affiliates), within the meaning of Regulation 13D under the Securities Exchange Act of 1934 or (iii) a Change of Board shall occur; provided, however, that if either Aab or Ganatra dies and the survivor holds an irrevocable proxy to vote the Class B Common Stock owned or controlled, directly or indirectly, by the deceased stockholder as of the time of his death, then so long as such irrevocable proxy remains in effect, such survivor shall be deemed to control such Class B Common Stock for purposes of clauses (i) and (ii) so long as such Class B Common Stock remains subject to such irrevocable proxy; and provided, further, that upon the simultaneous death of Aab and Ganatra or upon the death of the last to survive of Aab and Ganatra, if within 30 days of such deaths or death all of the Class B Common Stock owned or controlled, directly or indirectly, by Aab and Ganatra immediately prior to such deaths or death is converted into Class A Common Stock by Permitted Transferees (as defined in the Certificate of Incorporation) of Aab and Ganatra, such Class A Common Stock shall be deemed to be controlled by Aab and Ganatra for purposes of clauses (i) and (ii) so long as such Class A Common Stock is held by such Permitted Transferees. "CHANGE OF CONTROL AMOUNT" has the meaning set forth in Section 5.1(b). "CHANGE OF CONTROL PAYMENT DATE" has the meaning set forth in Section 5.1(b). "CLASS A COMMON STOCK" means the Corporation's class A common stock, par value $.01 per share, or any other capital stock of the Corporation into which such stock is reclassified or reconstituted. "CLASS B COMMON STOCK" means the Corporation's class B common stock, par value $.01 per share, or any other capital stock of the Corporation into which such stock is reclassified or reconstituted. "CODE" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder. 19 "COMMON STOCK" means Class A Common Stock, Class B Common Stock and any other class of common stock created by the Corporation. "COMMON STOCK DEEMED OUTSTANDING" means, at any given time, (i) the number of shares of Common Stock actually outstanding at such time, plus (ii) the number of shares of Common Stock issuable upon conversion at such time of the shares of Series A Preferred Stock, plus (iii) the number of shares of Common Stock deemed to be outstanding pursuant to Sections 4.6(a) and 4.6(b), whether or not the Options or Convertible Securities are actually exercisable or convertible at such time. "COMPETITOR" means any Person that is (directly or through one or more Affiliates) both (i) engaged in the business of providing telecommunication services offered by the Corporation and its subsidiaries that generate at least 25% of the Corporation's consolidated revenues as of the date of the Corporation's most recent Form 10-K or 10-Q filed with the United States Securities and Exchange Commission and the revenues of such Person attributable to such services exceed $50 million annualized and (ii) a competitor of the Corporation operating in at least 25% of the MSAs (Metropolitan Statistical Areas) in which the Corporation and its subsidiaries are operating as of the time of the proposed Transfer. "CONVERSION PRICE" is defined in Section 4.2. "CONVERTIBLE SECURITIES" means any stock or securities directly or indirectly convertible into or exchangeable for Common Stock. "CORPORATE CHANGE" means any capital reorganization, reclassification, consolidation, merger or sale of all or substantially all of the Corporation's assets to another Person which is effected in such a way that holders of Common Stock are entitled to receive (either directly or upon a subsequent liquidation of the Corporation) stock, securities or assets in respect of or in exchange for Common Stock. "CORPORATE GOVERNANCE AGREEMENT" means that Corporate Governance Agreement dated as of April 11, 2000 among the Corporation and the investors listed on Schedule 1 attached thereto, as amended, supplemented or otherwise modified. "COVENANT TRIGGERING EVENT" means the failure of the Permitted Owners (as defined in the Corporate Governance Agreement) to consent to a transaction contemplated by Section 3.1(i) or 3.1(j) of the Corporate Governance Agreement. "DIVIDEND PAYMENT DATE" means January 11, April 11, July 11 and October 11 of each year, beginning July 11, 2000. "INITIAL ISSUE DATE" means the first date on which any shares of Series A Preferred Stock are issued hereunder. 20 "INITIAL OPTION STOCK" means the aggregate number of shares of Option Preferred Stock actually purchased and issued under the Option Agreement, excluding any preferential dividends that accrue or are issued or paid pursuant to the terms of the Option Preferred Stock. "INITIAL PREFERRED STOCK" means the 200,000 shares of Series A Preferred Stock issued by the Corporation to the Purchasers pursuant to the Purchase Agreement. "JUNIOR SECURITIES" means any class or series of capital stock or series of preferred stock of the Corporation, the terms of which do not expressly provide that it ranks senior to, or on a parity with, the Series A Preferred Stock as to dividend rights and rights upon a liquidation, dissolution or winding up of the Corporation. "LIQUIDATION" is defined in Section 2. "LIQUIDATION DISTRIBUTION" is defined in Section 2. "LIQUIDATION VALUE" means, with respect to a share of Series A Preferred Stock, the sum of (as adjusted for stock splits, stock combinations, recapitalizations and similar events with respect to Series A Preferred Stock) (i) $1,000 plus (ii) all accrued and unpaid dividends on such share. "MARKET PRICE" of any security means the average (weighted by daily trading volume) of the closing prices of such security's sales on all securities exchanges on which such security may be listed at the time, or, if there has been no sales on any such exchange on any day, or, if on any day such security is not so listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, or, if on any day such security is not quoted in the NASDAQ System, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated or any similar successor organization, in each such case (except when the "Market Price" is being determined for purposes of Section 5.2(a)) averaged over a period of 20 days consisting of the day as of which the "Market Price" is being determined and the 19 consecutive Business Days prior to such day. If at any time such security is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the "Market Price" shall be the fair value thereof determined jointly by the Corporation and the holders of a majority of the shares of Series A Preferred Stock then outstanding. If such parties are unable to reach agreement within a reasonable period of time, such fair value shall be determined by an independent appraiser experienced in valuing securities jointly selected by the Corporation and the holders of a majority of the shares of Series A Preferred Stock. The determination of such appraiser shall be final and binding upon the parties, and the Corporation shall pay the fees and expenses of such appraiser. Notwithstanding the preceding: (i) an Option which is granted or repriced at an exercise price equal to the last reported sales price of a share of Common Stock on the Nasdaq National Market on the date of grant or repricing shall be considered to have been granted or repriced at the Market Price on the date of grant or repricing; and (ii) shares of Common Stock which are issued and sold in an underwritten registered public offering shall be considered to have been issued and sold at the Market Price. 21 "OPTION AGREEMENT" means that Option Agreement dated as of April 11, 2000 among the Corporation and the purchasers listed on Schedule 1 attached thereto, as amended, supplemented or otherwise modified. "OPTION PREFERRED STOCK" means the Series B Convertible Preferred Stock of the Corporation, or any other capital stock of the Corporation into which such stock is reclassified or reconstituted. "OPTION STOCK DESIGNATION" means the Certificate of Designation of the Corporation relating to the Option Preferred Stock to be filed with the Secretary of State of the State of Delaware in accordance with the terms and conditions of the Option Agreement, as amended, supplemented or otherwise modified. "OPTIONS" means any rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities. "PARITY SECURITIES" means (i) the Option Preferred Stock, (ii) the Series C Preferred Stock and (iii) any class or series of capital stock or series of preferred stock of the Corporation, the terms of which provide that it ranks on a parity with the Series A Preferred Stock as to dividend rights and rights upon a liquidation, dissolution or winding up of the Corporation. "PERMITTED OWNER" means (i) a Purchaser, for as long as the Purchaser continues to be the beneficial owner of any shares of the Underlying Common Stock, and (ii) each Permitted Transferee, for as long as the Permitted Transferee continues to be the beneficial owner of any shares of Underlying Common Stock. "PERMITTED TRANSFEREE" means (i) any Affiliate of any Purchaser to whom a Purchaser or another Affiliate of any Purchaser Transfers shares of Series A Preferred Stock or Option Preferred Stock, (ii) any other Person to whom a Purchaser or an Affiliate of any Purchaser Transfers shares of Series A Preferred Stock or Option Preferred Stock with the prior written consent of the Board of Directors, (iii) any Person to whom a transferee described in clause (ii) Transfers shares of Series A Preferred Stock or Option Preferred Stock with the prior written consent of the Board of Directors and (iv) any THL Holder and any of the funds affiliated with Bain Capital, Inc. and any general or limited partner of such funds; provided that in no event shall any shares of Series A Preferred Stock or Option Preferred Stock be transferred to a Competitor or a Person acting as a representative of a Competitor without the Corporation's prior written consent. "PERSON" means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization, or other entity. "PREFERRED STOCK DIRECTOR" is defined in Section 3.2. "PURCHASE AGREEMENT" means the Preferred Stock Purchase Agreement dated as of April 11, 2000 by and among the Corporation and the Purchasers listed on Schedule 1 attached thereto, as amended, supplemented, or otherwise modified. 22 "PURCHASER" or PURCHASERS" shall have the respective meanings given such terms in the Purchase Agreement. "PURCHASER PREFERRED STOCK" means the Series A Preferred Stock and the Option Preferred Stock. "SENIOR SECURITIES" means any class or series of capital stock or series of preferred stock of the Corporation, the terms of which expressly provide that it ranks senior to the Series A Preferred Stock as to dividend rights and rights upon a liquidation, dissolution or winding up of the Corporation. "SERIES C DESIGNATION" means the Certificate of Designation of the Corporation relating to the Series C Preferred Stock to be filed with the Secretary of State of the State of Delaware in such form as is permitted by the Purchase Agreement, as amended, supplemented or otherwise modified. "SERIES C PREFERRED STOCK" means the Corporation's Series C Convertible Preferred Stock, or any other capital stock of the Corporation into which such stock is reclassified or reconstituted. "STATED VALUE" means, with respect to a share of Series A Preferred Stock, $1000. "THL HOLDER" means (i) any general or limited partner of the THL Entities (a "THL Partner") and any corporation, partnership, or other entity which is an Affiliate of the THL Entities or any THL Partner (collectively, the "THL Affiliates"), (ii) any managing director, general partner, director, limited partner, officer or employee of the THL Entities or a THL Affiliate, or the heirs, executors, administrators, testamentary trustees, lifetime trustees, legatees or beneficiaries of any of the foregoing persons referred to in this clause (iii) (collectively, "THL Associates"), (iv) a charitable institution as defined in Section 501(c) of the Internal Revenue Code of 1986, as amended, which receives a bona fide gift by a THL Associate of shares of Series A Preferred Stock or Option Preferred Stock, (v) a bank, financial institution or other lender which receives a bona fide pledge by a THL Associate of shares of Series A Preferred Stock or Option Preferred Stock, and (vi) any trust, the beneficiaries of which, or any corporation, limited liability company or partnership, the stockholders, members or general or limited partners of which include only the THL Entities, THL Affiliates, THL Associates, their spouses or their lineal descendents. "THL Entities" shall mean Thomas H. Lee Partners, L.P. and its affiliated entities. "TRANSFER" means to sell, assign, transfer (voluntarily or involuntarily), exchange (by merger or otherwise) or otherwise dispose of or to grant a lien, encumbrance, pledge or other form of security interest, except that any Purchaser may create a security interest in shares of Series A Preferred Stock or Option Preferred Stock to secure loans made to it so long as any Transfer pursuant to such security interest is subject to the terms of the Corporate Governance Agreement. 23 "UNDERLYING COMMON STOCK" means all shares of Common Stock issued or issuable upon conversion of (i) the Initial Preferred Stock and (ii) the Initial Option Stock as of any date of determination (which number shall be determined, with respect to any given date, based upon the Conversion Price or the conversion price of the Option Preferred Stock, as applicable, in effect as of such date without giving effect to the one year limitation on conversion) without regard to any preferential dividends that accrue or are issued or paid with respect to the Initial Preferred Stock pursuant to the Certificate of Designation or the Initial Option Stock pursuant to the Option Stock Designation. 24 In witness, the Corporation has caused this Certificate of Designation to be duly executed on April 7, 2000. US LEC CORP., a Delaware corporation By /s/ Michael K. Robinson ---------------------------------- Michael K. Robinson Executive Vice President, and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----